Markets opened up this morning after an overnight "gum job" on the topic of trade. Despite the seemingly endless whip saw of the markets trading on tweets ( as crazy as that sounds) the underlying rotation continues to be into defensive sectors. We saw this theme again today as we managed our SImulated ETF portfolio. Today we turned to international ETFs and macro ETFs. While we had no forced liquidation due to performance of the International holdings in our portfolio, we did liquidate to make room for additional Macro ETFs. This portfolio is about chasing strength, so that's what we are doing. We liquidated a tranche of our two weakest holdings, to make room for SLV and more GLD. We also added to our bond position. D-Fense! Watch todays video to see how we manage this paper money portfolio using our own rules along with the Chaikin Analytics app.
Here is our Relative Strength Wednesday weekly progression of US sector ETF's weighted by both past performance and proprietary forecasting metrics found in Chaikin Analytics. The move in US stocks recent weeks is both defensive and yield-seeking, with Utilities and Real Estate holding the top two positions. Economic bellwethers like Energy, Materials and Industrials have fallen out of favor.
Macro-Monday shows the breadth of the market continues to narrow and favor of D-Fence
( clap-clap). The bull : bear ratio of the SPY remains below 1.0, with both the ST and LT Chaiin moving averages once again heading lower with price below both. It's the Twitter whip-saw. The chart below shows the Chaikin Bull : Bear ratio of the SPY expressed visually over the past 5 years. ( Click to enlarge)
More defining is the narrow nature of the sector fundamenta ratings, below, overwhelmingly defencive with Utilities and Healthcare in favor. All the cyclicals with a bull: bear ratio below 1.0. D-Fence! Watch our video to see how we use Chaikin Analytics to form our macro opinion.
Ahead of a volatile day, we went looking for something to add to our simulated ETF portfolio. What we found is a common theme as of late. D-Fence ( clap-clap) D-Fence.
We added a trounch of XLU and a trounche of XLP at market open, as well as liquidating a little tech, as we discovered we were exceeding our max holdings in tech. You know, devesification!?
Today was our weekly ETF portfolio management day. After starting a simulated ETF portfolio days before the steep correction last October, we're hanging in, flat on the year. Today we managed all of our U.S> tier 1 and tier 2 holdings, we did not face any liquidations. We have enough (paper) money on the sidelines to add a few positions tomorrow, if we can find an opportunity that meets our rules. Assuming we will be adding to some of our defensive holdings come this time tomorrow.
Defense - clap - clap - DEFENSE. Despite the bullish recent recovery, big money is moving to a defensive posture. Remember what makes this Relative Strength Analysis different - Chaikin Analytics' forward looking metrics like ETF Power Gauge and Powerbar Differential. This is more than a look at what sectors have been stronger recently, it's a forecast about which are set to outperform over the coming quarter or two.
Friday before the open we added to our simulated ETF portfolio. As expected, only defensive macro ETFs made the cut. Specifically, bonds and gold. We added 1 trounch each of TLT, GLD and IEF. After starting this portfolio just ahead of last Octobers pullback, we find ourselves back underwater following this weeks pullback. About $8k in the red, luckily this is paper-money trading, and no actual greenbacks were harmed during this simulation. We will stick to our plan and our rules and see where this market takes us.
On Thursday, we liquidated half of our holdings in Country Level 1 ETF's as prices breached the intermediate low by 1% or more. Below are our trades followed by Thursday's trading video. Will make purchases on Friday if market conditions allow, and we'll post that video later today.
Before the open this morning, our market call remained " Market Neutral- Negative Potential". Prior to the open, price was below a down trending ST Chaikin MA and below a LT Chaikin MA that was still heading higher. It seems the bond market is in control. Our Relative Strength Wednesday analysis confirms, a rotation into defensive- ( clap, clap) Defense! XLRE and XLU are tied for 1st,in what we can only imagine is a yield play against higher bonds followed by XLC, which contains a lot of the high yielding telecoms.
Watch todays video to see how we use Chaikin Analytics to come up with our Relative-Strength Wednesday rankings.
Despite a bullish ETF Power Gauge rating, positive money flow and an uptrending long term Chaikin DEMA, there are a few signs of concern, from a SPY Power Bar differential under 1 to downgrades to neutral on the IWM (small caps) and DIA (mega caps). The preponderance of increasingly bearish fundamental and technical evidence in our Market Conditions Analysis warrants additional risk vigilance.
A 6 month relative strength comparison between US Large Caps (SPY) and macro ETF's from around the world reveals Gold and Treasuries besting all equity indexes.
We use the Powerbar differentials on major Sector ETF's to forecast the relative performance of various parts of the economy. This is a little different than relative strength comparisons because Chaikin Power Gauge differentials are 85% weighted by fundament metrics of underlying companies and only by about 15% technicals.
Chaikin Analytics data suggest future strength in defensive areas such as healthcare (XLV) and utilities (XLU), while the forecast for cyclical areas like industrials (XLI) and consumer discretionary (XLY) is less optimistic. We are taking advantage of high volatility to hedge long positions with options and sizing investments at about half of our normal trade risk. But, because the chart of the SPY is set up as an intermediate dip, we are not scared of going long equities that are light up the Chaikin Checklist green. (Today's Video Soon)