This market is so skittish that the best thing I can say about it right now is that it is closed. We were generally fortunate this week in the models, with Top 20 moving back into the green relative to the market. Sector Selector ETF too made up some ground:
For the week, Top 20 rose, while the overall market fell slightly. We have recovered what had been a pretty big performance gap and are now ahead slightly year-to-date. We had some good performance among our smaller names, with one (SCVL) actually hitting a 52-week high. Technology was strong this week, and it helped the model too. Similarly, our Consumer names were helped by the steep decline in the price of oil. With limited Energy exposure, we were set up well. With just four days to go in the quarter, it appears that we will most likely underperform the S&P 500 this quarter unless we pull a rabbit out of the hat next week. This has been a tough year so far for the model, with several investments not performing very well. Historically, Top 20 has bounced back strongly from brief periods of underperformance, as it appears we may have begun to do over the past two weeks.
CG/B lagged slightly, hurt by the improvement in bonds (we are underweight) as well as some weakness in a few names. Still, the performance remains solid across all time-frames. For the week, the model declined just 0.2%, while the benchmark of 60% stocks and 40% bonds increased by almost 0.2% (this was the bonds rallying).
Sector Selector ETF actually rallied a bit on the week and was able to cut in half its performance deficit, which remains slightly negative since we launched eight weeks ago. Encouragingly, the performance has slightly bested the market over the past month. While I am disappointed that the performance hasn't gotten off to a strong start, I feel fortunate that we have tracked relatively closely given how wrong I have been positioned on a couple of fronts (especially Financials). One thing we did well was to exit Utilities and Health on some strength.
Market Outlook
What a frustrating market, at best. Every time it looks like we might be ending this malaise, we fall right back in. I am somewhat concerned that the near-term price risk to the market may be picking up, as slightly lower prices could pull in some significant selling. With that said, I remain optimistic that the economy will continue to muddle along, with stocks likely to experience some PE expansion. While I maintain my bullish "1500" S&P 500 call, I am quickly realizing that I may have been too optimistic. As we cross the fifty yard-line, so to speak, next week, it leaves us quite back-end loaded given where we sit at this moment (up 2% YTD). My technical review of the market doesn't match my nervous gut - the charts look quite good to me. One positive for this week was that the lows from last week held. It's too early to celebrate, but I am hopeful, as a little stronger market could pull in a lot of buying. Yes, we appear to be at a fork in the road.
Articles
- 11 Really Cheap Banks - Seeking Alpha
- 4 Growth Stocks- TradeKing
As the quarter draws to an end, I like the positioning of CG/B and Sector Selector ETF. We have some work to do with Top 20, as I need to figure out whether we should remain committed to the several names that aren't working particularly well. I have several potential replacements that I am considering and may look to "upgrade" the model this weekend. It's essential to be patient in these situations and not let emotions rule. So far, we have been rewarded in the case of one name that fell hard in April but to which we actually added - perhaps now is the time to sell. We also have one name that is getting reasonably close to its target that I am contemplating selling, though I expect to hold on for a little more.
Best Regards,
Alan Brochstein, CFA
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