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Relative performance of S&P500 sectors from 2016 to present

The value of fore-planning cannot be over-emphasised. This is a followup of some observations I made last 2 weeks as well as what goes through my head when I look at all these charts.

In addition, I post an overlay of SPY (S&P500 ETF) and it’s associated sector funds which show the strongest to weakest US stock sectors based on performance from beginning 2016 to present.

Using this input, develop 2 action plans – one for a market boom A and one for a market bust B. Depending on which outcome shows up (but we do not have to predict), take out action plan A or B and apply accordingly.

 

Recall some recent moves in AUDUSD, AUDJPY

In a previous blog post ‘AUDUSD, AUDCAD and AUDJPY observations‘, I pointed out that AUD is showing strong resistance at a 5-quarter level (that’s more than 12 months). In my opinion a resistance off this duration is very significant. If AUDUSD cannot move higher than it has to find a different direction. What we see right now is AUDUSD confirming that observation.

AUDUSD fails at significant level

AUDUSD fails at significant level

 

AUDJPY weakening has implications to Asian indices

In that same post, I also point our that AUDJPY appears also to be resisted and this is turning out to be true now as we see some kind of slow-motion letting out air going on. In conjunction, AUDJPY has previously demonstrated strong positive correlation to Asian indices especially Hang Seng Index and SiMSCI as well as EEM.

AUDJPY-HSI-SiMSCI correlation

AUDJPY-HSI-SiMSCI correlation | Chart: Tradingview.com

Since then, EEM struck resistance, SiMSCI and Hang Seng Index has corrected somewhat. You can check them out but this is a chart of HSI.

Hang Seng Index MT4 chart

Hang Seng Index

 

Crude oil movement

In another post ‘XLE, Natgas, DIA and WTI signalling something?‘, I pointed out that WTI was stuck at a 11-week level, that the US energy sector was mysteriously losing while the broad market was having a very good time. In fact, Natural Gas has already collapsed.

WTI stuck at 11-week level

WTI stuck at 11-week level

 

Someone on Google Plus pointed out that Natural Gas correction was due to seasonal factors. I want to address this. I am not an energy expert and I do not have the skill and acumen to tell whether Natural Gas price movement is or is not due to the seasons. But I do know that when interconnected markets that have previously demonstrated correlations start to move together we have to take note. One signal is easy to brush off but one should not brush off so many convergent or confluencing signals happening at the same time.

Overnight action on WTI has proven me to be correct for now.

WTI big correction overnight

WTI big correction overnight

If you have paid attention to the early signal, a short earlier this month might have been agonising but we are now rewarded. On the other hand, anyone who has ignored the warning or decided to postpone any action will have a big problem now – in one night WTI has moved the entire range of the past 2 months. Re-entry is a big issue now. Do you bet that the momentum will continue? Do you bet that early movers have already taken profit and exited (which means retracement coming soon)?

 

Which are the strongest and weakest US sectors?

Anyhow I want to continue my early planning. Based on the roller-coaster ride we went through last year, I have a nagging suspicion that US stock market might go through a correction but not a major one. My technical observations are here. If there is a reason for a big crash, it is not in the charts anymore. What we went through last year defied logic in my opinion because despite very bearish setups, the market persistently rallied until we are at this current obscene high.

For lack of a good reason, I am going to say that the market is supported by ‘Invisible Hand’. So now that the markets are so bullish technically, the reason they will crash is only if ‘Invisible Hand’ decides to go away. But there is no way to tell from the charts.

So we can only plan for the best and worst.

Overlay of S&P500 ETF and associated sector funds; relative performance since 2016 to present

Overlay of S&P500 ETF and associated sector funds; relative performance since 2016 to present

This is a chart of the S&P500 ETF SPY overlaid with associated sector funds from strong (top, best performance) to weak (bottom, wort performance). In order of strength, they are:

  • XLF for Finance (best performance)
  • XLI for Industrials
  • XLK for Technology
  • XLB for Materials
  • XLU for Utilities
  • SPY (S&P 500)
  • XLE for Energy
  • XLY for Consumer Discretionary
  • XLP for Consumer Staples
  • XLV for Healthcare
  • XLRE for Real Estate (worst performance)

I think that rather than to fret whether there will be a crash or not, this is a time to identify the strongest and weakest. Will you:

  • Reduce risk by taking profit?
  • Hedge for protection?
  • Move to safety?
  • Buy the strongest sell the weakest?
  • And many other combinations.

Develop 2 action plans – one for a market boom A and one for a market bust B. Depending on which outcome shows up (but we do not have to predict), take out action plan A or B and apply accordingly.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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