Amidst the joy that comes from celebrating a winning season with a completely meaningless win for the Buffalo Bills, the Yinzer Analyst turns his thoughts to the opening tomorrow and those last few precious trade days before the start of a new year. There have been a spate of articles lately about how one man’s, or one year’s, treasure can become next year’s trash and to be honest, there’s a great deal of truth to that. Take a look at a Callan table and you’ll see there’s some logic to buying whatever’s been left behind but it’s not consistent. Buying the dogs of the DOW isn’t always a sure thing; check in on Sun America Focused Dividend to see where that got you in 2014. But that has us thinking that it’s time to check in some of 2014’s biggest losers to see how they’re setting up for a brand new year.
Can the Last be First?
First up, the biggest shocker for the broader equity market came from energy stocks; from Jan 1 to June 30th, the Energy Sector Select SPDR (XLE) was up 14.18% versus 6.95% for SPY. Since then, XLE has come crashing down 19.06% as West Texas Intermediate Crude broke down nearly 47% while SPY has chalked up a further 7.59% gain. XLE has firmed up since hitting the 200 day moving average although it has yet to break through the downtrend lines that have held the weekly chart pattern in a downtrend channel since this summer. Currently sporting some of the lowest price-to-earnings multiples to be found in domestic stocks, how long will it be before the can breakout?
As long as we’re on the subject of hard assets, how about equity precious metals, down 13.11% YTD as concerns over rising inflation become a thing of the past. The Market Vector Gold Miners ETF (GDX) showed signs of life last Friday as the potential for more stimulus in China helped spark a rally for the miners although the technical outlook has been improving for the sector over the course of the month. The miners have broken above the summer’s downtrend line and have spent most of December consolidating but have yet to break through the 50 day moving average or move beyond the longer-term downtrend line you can see in the weekly chart. Speaking from personal experience, until it can close above the 2012 downtrend line, any rally for GDX should be treated warily.
And you can’t talk about gold and oil without talking about Russia, so let’s check in on the Market Vectors Russia ETF (RSX):
Ever since bouncing off $12 close to the 2009 lows, it’s been nothing but up for RSX but remember how quickly this can all turn around. Since 12/17 RSX has moved up 15.98% on….well I’m not really sure. Could it be the promises of China to help bail out Russia if it needs it? The lack of further sanctions? Simply closing out of short positions to reinvest closer to home? RSX may have cleared the steep downtrend line dating back to late November but still has to face to the 50 day moving average and the gentler downtrend line from last summer. Until it can get above that, I’d be very cautious about adding Russian longs.
And as long as we’re overseas, let’s wrap up this discussion by focusing on the China A-shares market where it’s been nothing but profit since coming close to a double bounce of multi-year lows this spring. It’s been a strange pattern since then;
the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) has a nearly parabolic advance then cools off to consolidate and digest the recent gains. Then it’s rinse, wash and repeat. It looked like ASHR was going to do more than consolidate this winter but the recent rise in speculation that the PBoC will cut reserve requirements breathed new life in Chinese equities. For now ASHR is stuck in a trading range and consolidating recent gains and while the daily chart may not show overbought status, the weekly chart sure as heck does.
So what about the Yinzer Analyst’s favorite investment, Europe, in 2014? While I still think the U.S. will stay the core of my own portfolio until proven otherwise, I think investors need to put more focus on diversifying their portfolios next year, especially with SPY up 15.45% annualized over the last five years versus 2.81% for the iShares MSCI EMU ETF (EZU) and 5.5% for the iShares MSCI EAFE ETF (EFA.) With such strong performance, why would anyone want to see “performance drag” from investing in anything other than U.S. equities? Performance catastrophes usually start off with logic like that.
So is the Yinzer Analyst still optimistic heading into year end? First on a weekly basis EZU has managed to get back above its summer downtrend line on better volume although it still has to challenge overhead resistance around $39.
What about compared to the S&P 500? On a daily basis, the relative momentum has been bottoming out for nearly two months now although EZU began weakening as it pushed towards the relationships’ 50 day moving average. On a weekly basis you can see that while the relative momentum hasn’t gotten any worse, it sure hasn’t gotten any better. Until it can break out of the downtrend line, domestic equities are still the “safer” bet in 2015.
But what about domestic equities? Are they still the sure fire wager in 2015 that they have been five years into a bull market? Continuing to focus purely on technical, you can see that the S&P 500 has finally pushed above its consolidation range but did so on very weak holiday volume and giving us essentially a neutral CMF (20) score and a notable divergence from the price trend. Given the number of managers underperforming in 2014, I wouldn’t be surprised if the action stays quiet over the next few days with the market only showing a major trend change on Jan 2nd.
But speaking of trend changes, the sector to watch continues to remain the healthcare sector. Despite the relatively weak price action in the second half of the week, XLV remains firmly entrenched in a relative momentum uptrend channel that formed in early 2012. The question remains whether the recent weakness in Gilead will be enough to derail the entire sector and send it lower in 2015.