Every week, we take a look at the relative strength of ETF's across all asset classes and check the Power Gauge ratio of bullish to bearish underlying stocks in each so that we can develop our market posture for the upcoming trading week. This is especially critical with earnings season upon usere's our take on current market conditions :
Our plan: add international ETF's showing positive relative strength vs. US. Maintain current US stock positions positions but with tighter stops through earnings and what we see as a volatile late Q2 and 3. We'll look to add banks, drugs, insurers, retailers and medical service providers on positive forward guidance and Very Bullish power gauge ratings. We'll calls spreads on Energy, Basic Material and select Tech stocks as the market gets oversold in late April and the Vix moves higher. We expect "Sell in May and Go Away" to be a prevailing theme into the summer months. We're cautious and expect volatility.
- US Stocks - Neutral, with weakening Power Gauge ratings and choppy technicals. Analysts have been taking estimates down ahead of earnings. Is it enough?
- Much stronger US small caps. The strengthening dollar is not an issue with companies whose earnings are US based. Bullish rated stocks are outpacing Bearish ones by a 2:1 margin. Meanwhile, the PG ratio remains below 1 on the large cap index.
- Commodities, energy and other basic materials are not reflecting surging world wide economic activity. We think Tech could make an outsized downward correction as companies scale back capex plans.
- The dollar is breaking out of consolidation and appreciating. Multinationals will gripe and use it as an excuse to lower forward guidance.
- Healthcare continues its run as the strongest US sector. Drugs and Biotechs remain strong. Consumer Discretionary stocks benefiting from lower prices consumers paying at the pump and Financials showing relative strength in line with expectations for higher interest rates. These companies are the ones likely to offer encouraging guidance and earnings pops.
- Europe and Far East stock markets starting to outperform the US, with China having gone parabolic. Printing presses are running overseas, while the Fed waits for its chance to begin raising rates despite softening economic conditions.
Our plan: add international ETF's showing positive relative strength vs. US. Maintain current US stock positions positions but with tighter stops through earnings and what we see as a volatile late Q2 and 3. We'll look to add banks, drugs, insurers, retailers and medical service providers on positive forward guidance and Very Bullish power gauge ratings. We'll calls spreads on Energy, Basic Material and select Tech stocks as the market gets oversold in late April and the Vix moves higher. We expect "Sell in May and Go Away" to be a prevailing theme into the summer months. We're cautious and expect volatility.
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