Sunday Night Recap: Winter Reallocation is Coming

While you’d think the Yinzer Analyst would be feeling the need to overwhelm you with some serious investment wisdom after the big win in Buffalo this week; he’s managed to come down with something nasty so we’ll be keeping it short tonight.  For the Yinzer Analyst, the focus is now shifting to where we think capital might be redirected in the upcoming annual reallocation.

With November finally in the books, it was all large cap as the S&P 500 managed to churn out a 2.45% gain, a 1.69% gain for the S&P 400 Midcap and a slight -.02% loss for the Russell 2000. I’m still of the opinion that this push has done nothing but move the S&P 500 even more into the overbought territory and leave it at risk for a greater pullback if and when valuations start to matter again. In the meantime we’re continuing to watch the iShares MSCI EMU Index (EZU) ETF which saw its first strong monthly gain since last spring with a 3.88% gain. The strong performance continues to be driven by the more politically and economically stable nations of Northern Europe with the iShares Germany ETF (EWG) up 5.73% in November compared to iShares Italy down -.13%.

Breaking down the charts:

Starting with the daily charts, EZU has plowed through the downtrend line and prior support to push its way back to another prior support from the recent downtrend around $38.50. Pushing towards the 200 day simple moving average at $40.71 would be indicated but looking at the weekly chart, you can see we’re back into the same situation on a weekly basis that we were on a daily basis a few weeks ago. We’ve cleared the downtrend line but have run right up against prior support. This coming week could see us just consolidating if the strength isn’t there to push it higher.

ezu2ezu3On a long-term monthly chart basis, EZU retested prior resistance at $36.50 for the second month and is bouncing higher with a prior leg to the uptrend at $40 and forming a natural resistance point about 2.96% above the monthly close at $38.85.

ezuSwitching gears to look at relative momentum, you can see that EZU broke the relative low point it achieved versus the S&P 500 set way back in July of 2012 but with two weeks of stronger performance from Europe, EZU has cracked above the line and has nothing but air in front of it although EZU still has yet to break out of the relative momentum downtrend line that it has been stuck in since late spring. Until that happens, everything else remains fluid.

EZUSPY2EZUSPYMThe only other major development this week worth getting into at the moment is the return to weakness in the energy sector. The decision by OPEC to leave production quotas unchanged wasn’t a major surprise given their history of focusing on long-term decision making (not to mention bringing the pain to American producers) but had a devastating effect on energy and natural resource stocks. XLE ended the week down 9.81% and erased nearly the entire decent rally off the October lows. While I’m sure that this move lower is going to provoke a lot of discussion about sector rotation but looking at either XLE or the broader materials sector ETF (XLB), neither is showing a lot of strength against the S&P 500 at this point. I’d be really reluctant to add new positions until some signs of strength begin to emerge.

xleMLBAnd finally we have the gold miners, ugh. After cracking it’s summer downtrend line and running smack into the 50 day moving average, the miners sold off strongly at the open in a sympathy move with the materials sector although some strong buying around the close helped keep GDX above the prior downtrend line. Recent buyers should watch this week carefully to make sure any profits off the early November bounce don’t run away on you.

GDX

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