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Can This Important Sector Kick Into Gear?

CAMS Weekly View from the Corner – Week ending 1/24/2020

January 27, 2020

While barely a month into this year of 2020, relative to market behaviors, it feels like the 1st quarter of the year is nearly completed.

Offered another way, in just a short month there has been quite a bit of notable market activity – some good and some that hint at potential caution.

To be clear, said caution has not been blatant via market behavior but it has been chirping if you will and mere chirping gets our attention.

For our part this all falls under our on-going and consistent observation of the previous few years whereby we have and continue to be operating within markets that are highly valued.  The stock market specifically fits this label quite well.  Importantly, as we have also chronicled for quite a long while; just because said market is highly valued does not translate to a market that is destined to go immediately lower.

Historically speaking, using market valuation levels as timing tools can prove to be frustrating.  Adding to this though, it is very important to be fully aware of what type of market we are participating in relative to valuation levels because it aids in understanding collective market participant behaviors.


Click For Larger View:   http://schrts.co/nepruZfS The above chart depicts a year in length of the Consumer Discretionary stocks.  This space is one of many that we observe in its behavior characteristics to help get a sense of collective market participant’s willingness to bid up these economically sensitive companies.

To emphasize, observing this space is not a one-stop shop if you will but rather it is a piece of the proverbial market puzzle.

The horizontal black lines identify the range this space operated within for the bulk of 2019.  Later in the year these began to push upward and out of the range depicted by the black lines.

The red circle focuses on the behavior of this space here in 2020.  It has been uncertain.  What is important is the stock market has been solidly positive thus far in 2020.  This is what we call a negative divergence in that the above area is not in line with the general market behavior.

Looking under the stock market hood a bit more – we can see the bulk of the stock market strength has come from Technology.  That is not a negative but broader participation from sectors such as the above would give a firmer foundational message from market participants.

We are watching these types of divergences throughout markets to see how these develop for further evidence as to how strong the stock market really is here early in 2020.

For now, there are divergences developing but also it is quite early in the New Year.  We offer the above under the premise of things to watch as we begin this year in earnest.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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