The ‘market’, as defined by the S&P 500 Index*, appears to be in a trading range. It looks something like this:

Although the S&P Index doesn’t include all stocks, it includes about 500 of the largest companies in the USA, so it’s a pretty good representation. Technical indicators suggest that the current range goes from a low of about 2650 to a high just shy of 3000. While we’d all like to see stocks continue on the path of the bounce since the March 23rd low, the bounce back up from the March low to the current area of about 2800 or so was a fairly quick bounce. It’s reasonable that the market needs a bit of time to consolidate, so we may bounce back and forth within that range until something causes prices to either pierce to the downside and continue down, OR (more likely we think) pierce that range to the upside and continue back up.

As most readers are aware, the recent moves by the SPX have been more heavily reliant on a smallish number of very large-cap technology stocks; causing the Nasdaq to bump up to a new 19-year high. We would most certainly like to see a broader advance, and one that includes a wider range of sector advances. From the March bottom the markets have been led back up primarily by technology, healthcare and biotech issues. If this bounce would spread around to include the other sectors, we would take it to mean that there would be a growing confidence generally, rather than seeing a growing number of investors placing their core investing-confidence in a smaller area.

While we are somewhat confident that the overall economy can emerge from this disastrous period in an acceptable condition, we must admit that some of the disruptions to home, work and travel may be more long-lasting. In particular it appears that many workers are learning the joys of working from their homes, and at the same time many employers are learning the joys of needing less leased office space as those workers gain productivity in their work from remote locations. This does not bode well for the area of commercial real estate.

We can’t help but mention that we’re still not happy with the action of the junk bond markets. A healthy stock market normally is preceded by a healthy junk bond (high yield bond) market, and today’s high yield market is somewhat flat.

Also, of interest, many of the Asian-Pacific markets have rebounded in a stronger manner that we would have expected- in a number of cases on a par with the bounce up from the March lows in US stocks. As we look for ways to reduce portfolio risk, we are pleased to see those Asian areas as a potential place to direct investor’s funds – and at a much cheaper (in terms of earnings multiples) prices than US stocks.

Outside the realm of stocks – we note that gold and more particularly gold miner’s stocks are also enjoying a positive bounce.

Disclosure: Our clients are over-weighted in the areas of technology, healthcare, and gold stocks.

Ron’s Market Minute – Why Technology vs. The Market?

Midweek I received a call from a client who, upon observing his portfolio holdings asked ‘Why do I have more technology than any other sector?’.  I did a quick video conference with him and showed him the following chart. (Note that chart is updated through yesterday.) This is a six-month picture of the US technology sector represented by the symbol XLK – red line compared to the US market average represented by the symbol SPY – green line. 

Source: FastTrack Database

The technology line goes up faster during the up market from mid-November through mid-February, or in tech terminology its relative strength is stronger. From the market’s peak in mid-February the technology line, although it drops just as the market drops, loses less than the market. This also is showing that the technology bucket is relatively stronger than the market. And finally, from the march bottom until yesterday the technology line is again growing faster than the market- continuing to exhibit more strength than the market. 

The bottom half of the chart is a representation of relative strength- the rising line shows that technology (during these six months) is continuing to exhibit more strength than the overall market. Note that both symbols lost money during the downdraft, but that the stronger asset lost less.

When our call was finished, this client confessed that he had not understood the concept of relative strength- but that he was finally understanding it- and thanked us for using relative strength in designing his portfolio mix. 

Perhaps this illustration will also aid some of the others who did not quite ‘get’ relative strength. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw[@]denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

LFS-3089169-051520