Wow, brutal week for the markets. The SP500 broke below and closed the week under the 1,600 level, which is the line we were watching to be aggressive above and conservative below. Now, below that price, the market will be guilty until proven innocent. It will need to move back above 1,600 and hold as the first step in building any confidence that a summer pullback is not upon us. I posted mid week about the intermediate trend breakdown and the possible implications. If you haven't read that yet please do as I feel it has significance for the near future.
Despite the negative price action the SP500 did still manage to hold its rising 20 WMA as well as the retest of the prior high from 2007 at 1,575
So a slightly more positive view than we could have after Thursday's meltdown. Still this is the
last thing standing in the correction's path. If this week's low fails to hold in the coming weeks, then everything we discussed in Thursday night's post will be in play.
As things are beginning to break down I was impressed with how our portfolio holdings performed this week. While we did lose one position (DDD) and there are a few more on the fence, several performed very well relative to the overall market. And considering the aggressiveness of the sell off, we still hold 11 positions. I would say our stocks are continuing to show that they are market leaders. I am concerned with the short term health of the markets here, but since we take a longer-term view with our holdings, that time-frame has not been damaged all that much. Short-term things are dicey at best, but longer term we are still in a bull market.
Review of Holdings
Currently invested in:
XLF, XLY, XLK, XLI, XLE, XLV
HD, F, WFC, PBW, HAIN
Cash positions:
XLB, XLP, XLU
AAPL, ENB, MOS, CMI, DDD
XLF
One of the strongest sectors year to date held up very well this week amid the volatility. Not much not to like here. Stay long Financials. A break below the trend support and close below the 20 WMA will trigger our exit. There should be very strong support at the base breakout level $17.00. I would expect a pullback to slow at that level, which is roughly 10% below current prices.
XLY
Discretionary will be a space to watch very closely this coming week as it has broken its near term trend support. A close below its 20 WMA will be our stop. Relatively it is still outperforming, so as long as its above about $54 we will stick with it.
XLK
Tech is barely hanging on after taking a bruising this week. the relative breakout is losing its grip and price has closed below the 20 WMA. I still want to see if it can stabilize here since it is still within a 3 year uptrend. This one is on a short leash.
XLI
Industrials, along with Financials held up the best this week. As long as the trend is in place and outperformance continues, we will stay with it.
XLE
Energy has failed its wedge breakout and traded below its 20 WMA. If trend support fails we will exit. This looks to be a false breakout and rocket lower. Remember, "from false moves, come fast moves". When the market is expecting an outcome (XLE to breakout to the upside) but it gets another, that is when swift moves occurs. These can occur to the downside or the upside, so something to watch for when a breakout or breakdown fails to move as it should.
XLV
Healthcare finally broke its uptrend support. After hanging on the last two weeks, the selling pressure got to it this week. Volume was high this week also which is an ominous sign with a trend breakdown. Still holding the 20 WMA and relative performance is still strong. We will hold above 46.50. I am watching a potential Head/Shoulder top in formation here (beginning in April), and a break below 46.60 would trigger that pattern. The downside target is $43.12
HD
HD looks to be destined for that lower support line. So far it is holding and its been in place for so long we have to give it the benefit of the doubt. a close below 72.50 will be our stop. Relative strength is still holding, but it really depends on where you draw your line. The long term support going back to mid-2010 has poked below the line, however the 18 month support is still holding. We will be watching this closely.
F
Ford looks good. Not too much more to say than that. It is looking like it will retest its breakout and/or come back to trend support. Plenty to like in this space.
WFC
Our strongest performer this week was Wells Fargo. It actually closed up on the week! That's relative strength and that is exactly what we are trying to find. In my opinion it could use a pullback to about $39, but right now its performing well.
PBW
Clean Energy is still flagging after its Head/Shoulder base breakout. Selling volume has declined in the last 2 weeks which shows a lack of strong selling conviction. We will continue to hold as long as the neckline support and 20 WMA are not broken. Those key levels are at ~$4.80.
HAIN
HAIN has had a tough month and this week broke the near term uptrend support. Price is still holding key base support at $62 and relative performance is still in an orderly uptrend. Remember that we like to see a moving average cross when the shorter average moves above the longer average? We are seeing that here on the weekly time-frame with the 20 crossing the 50 (that and both averages are sloped higher, muy bien!). That bodes well for the intermediate term if price can hold $62...still good things.
All in all a decent hold from our positions. I find it very interesting that Financials and Industrials were the two strongest sectors in terms of relative outperformance this week. Typically when the markets get hit, those "riskier" groups are the ones who take a major pounding. But looking around this week Staples, Utilities, Bonds...Those were the groups that got crushed; silver lining to a troubling start to summer. Now we just have to wait as see if the markets can hold onto their intermediate support levels.
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