Apr 30

Weekend Review and Watchlist


This was one of those weeks where if you’d been paying too much attention to the daily swings and noise around the Fed and quarterly earnings, you could have potentially opened yourself up to some impulsive behavior and later regretted it. The news and commentary was breathless, but at the end of the week when you look at what happened within the context of a longer timeframe, you wonder what all the fuss was about.

Here’s the S&P on a 3-year weekly:-

We’ve barely retraced the ground of the last few weeks, which longer-term bulls will argue is impressive to have given back so little, and shorter-term bears will point to the many divergences on individual stocks accompanying this move and say there’s room to move as low as 2,000. Both fair points. We’ll see.

The Dow ($DJIA) is sporting a similar pattern, while the NASDAQ ($COMPQ) had a tougher week of it, breaking below its 10 and 40-week MAs, after getting hit with weakness in both technology and biotech.


In terms of the major indices however, that weakness seems isolated to the NASDAQ, as the decline in the Russell ($RUT) was also relatively modest, merely giving back the previous week’s advance.


On a relative basis $RUT is still pointing in the right direction vs $SPX, having started to outperform 11 weeks ago.


As much as I could, I stayed away from the news and daily commentary this week. I’m already disciplined enough not to act on it, but in the past just seeing some of the nonsense that’s said and written has frustrated me, so this week I tuned it out even more than usual during the key announcements.

When it comes to earnings, the prices I’m interested in aren’t those during amateur hour after hours, they’re the ones 24 hours later, at the close of the following trading day. Everything prior to that is noise.


Sector Analysis

Of the nine S&P Sector SPDRs, the leading pair remain Industrials ($XLI) and Materials ($XLB).


They’re followed by Consumer Discretionary ($XLY), Energy ($XLE), and Financials ($XLF), not a bad mix of sectors to be leading the market. Utilities ($XLU) and Staples ($XLP) both improved after their recent weakness, while Healthcare ($XLV) and Technology ($XLK, below) slipped lower and are testing their 200-day MAs.


Away from the Sector SPDRs, Biotech ($IBB) was lower for five days straight, stopping at its 50-day MA:-


Semis took a dive back to their 200-day:-


while Gold Miners ($GDX) cleared the tower and are somewhere over the Atlantic.


One thing to add here using the example of Materials, is that they still have a long way to go before they are near their old highs, but that hasn’t stopped us finding some very strong names for our timeframe over the past two months. Something I mentioned last week bears repeating here. It’s true there are fewer stocks making all time highs, but that doesn’t mean breadth is deteriorating. There are fewer all time highs because the sectors that were leading and making all time highs for weeks on end (Utilities and Staples) have since turned lower, and the sectors that are leading now are making significant headway following multi-month declines, but they are still well below their all time highs.

The good news is you don’t need to wait for all time highs to participate in those trends. You can also take signals at multi-week or multi-month highs, and after a major downturn or year-long stealth bear like we’ve had, those will often be the signals you get at first.

We’ve already benefited from having exposure to several names that were above their 20, 50, 200-day MA’s, with successive higher lows and higher highs, and were making highs on a multi-month basis. Believe me, you would struggle to find a materials or energy stock at all time highs at the moment, but they have been no lesser opportunities for that. The overriding principle is to look to whichever stocks and sectors are leading for your timeframe. Don’t let a top-down view on the overall market keep you from taking a perfectly good signal on an individual stock.


Alpha Capture Portfolio

Our portfolio enjoyed some solid outperformance this week, its biggest for 8 months, climbing +1.8% while the S&P fell -1.3%. Maybe if we get a second one next week we can call it a trend. That takes it to -2.3% YTD.

It’s continuing to recover, slowly but surely, and the real message here is even if the market environment we’ve already endured for over a year isn’t over yet, as tedious as it’s been to live through, we’ve done what’s been necessary to survive it and be ready for what’s next. What did it cost us? A few percent? I’ll take it. If you’re not able to make money, the next best thing is to not lose too much until you’re able to make money again. It hasn’t been pretty but we’ve done that.

This week we took one exit and had two new entries. We’re up to 14 positions and open risk of around 8%.




We already have a fairly full allocation of portfolio names and additional trade ideas, so there are fewer names on this week’s watchlist, but the leadership is clear with strong representation from Industrials, Materials/Energy, and Consumer Discretionary. Here’s a sample from the full list of 20 names:-



















Apr 24

Weekend Review and Watchlist


Another positive week for the S&P, but a reasonably volatile one, finishing off its highs with the major indices buffeted by the crosscurrents of earnings reactions and continued rotation out of utilities and staples into energy, materials, industrials, and financials.


The NASDAQ ended lower on the week after getting hit on Friday following disappointing earnings from $GOOGL -5% and $MSFT -7%, which combined account for around 17% of the index.


The Russell ($RUT) followed through well, and relative to the S&P continues to make good progress.


Sector Analysis

The dominant theme in the S&P Sector SPDRs is the continued exodus from the long-time leaders Utilities ($XLU) and Consumer Staples ($XLP) to the benefit of almost everything else.

This is causing some commentators to read into a diminishing number of stocks making all time highs as somehow showing a lack of leadership and reflective of poor breadth in the market. This couldn’t be further from the truth. Leadership is simply reverting from defensive sectors like utilities and staples to sectors that are well off their highs like energy and materials, so of course there are fewer stocks at all time highs, but the overall health of the market is vastly improved, with strength in Industrials, Materials, Energy, Consumer Discretionary, Healthcare, and Financials. What more do you want? You can’t use the excuse of defensive sectors rallying being bearish, and then when they retreat and growth/risk-on sectors improve say that’s also bearish.

Industrials ($XLI) and Materials ($XLB) are trending strongly, along with Healthcare ($XLV), Energy ($XLE), and Financials ($XLF).


Despite being flat on the week, Consumer Discretionary ($XLY) remains in a good position to challenge its highs, and even with this week’s late hit, Technology ($XLK) is just below its 20-day MA.


Consumer Staples ($XLP) and Utilities ($XLU) continue to move lower since hitting their highs over 3 weeks ago, and both sliced through their 50-day MA this week.


Alpha Capture Portfolio

A disappointing week for our portfolio, ending -0.6% to take it back to the level of two weeks ago -4.1% YTD, after declines in our two biggest holdings took their toll.

There were three exits during the week, three new entries, and after Friday’s close we have an additional exit and entry for Monday. All told, we will be going into next week with 13 portfolio names and around 20% in cash.




Plenty of strength this week on an expanded watchlist, with industrials, healthcare, and consumer discretionary accounting for over two-thirds of it. Here’s a sample from the full list of 30 names:-



























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