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)
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