Sector Rotation Model Portfolio Performance, as at October 10, 2014 


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Broad Market Internals, October 3, 2014 
Volume ticked up modestly in Sep relative to the worst reading in history in Aug, but this was predominantly due to a surge on triple witching and the pickup on market weakness at the end of the month. Best readings were in Resources: Chemicals, Industrial Metals, Oil Equip & Svcs, and Industrial Mining.

Breadth has not picked up in Sep after initially starting to lag at the end of Q1 and turning poor through early Jul. At the best levels at the start of the month 52wk highs amounted to around a 1/3rd of the +2.5yr record from last May before collapsing into the end of the month, when the best concentrations were in Consumer Noncyclicals and Gas Distr, with the lows at a 3yr record last week.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - have risen to mildly oversold after last week hitting the most extreme oversold levels since mid Apr, while the recently more important 25-day indicator registered the most oversold reading since late ‘11.

At the same time the intermediate 50-day indicator hit the most extreme oversold readings since fall ’12, after the prior advance petered out at the weakest reading on record.

Notwithstanding serious internal weakness, the magnitude of the recent broad market decline is of a similar degree seen Jul through early Aug and that does not yet seem consistent with the weight of the technical red flags that have emerged over the past few quarters. Near term the broad market is very oversold and should rally, but equally that is a position waterfall declines can develop from albeit with a small probability.



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Broad Market Internals, May 30, 2014  
Volume collapsed in May registering the worst monthly tally of ’14 and casting doubt on the emerging theme of better activity levels seen earlier in the year. Best readings were in Media and Electricity, with Metals & Mining, Discretionary Consumer Goods, and Integrated Banks all exceptionally weak.

Breadth was again soft as has generally been the case since mid Mar, consistent with the LT trend. 52wk highs have remained highly subdued barely inching above the Apr best, Fri closing less than a 1/4qtr of the +2.5yr record from last May, with the best concentrations currently in Tobacco, Integrated Oil & Gas and Pipelines (for the 2nd and 3rd consecutive months respectively), and Office Equip. 52wk lows set an 18m record early May before ending the month negligible, with the worst concentrations in Mining and Comp Hardware.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - have started to pull back after early last week hitting the most extreme overbought levels since mid Feb, but the recently more important 25-day indicator has only just entered heavily overbought territory suggesting the rally off the midmonth lows may have a little further to run.

At the same time the intermediate 50-day moving average has rallied back to mildly overbought, but recent intermediate market highs have coincided with dwindling peaks in this indicator since last spring. Finally the LT 200-day indicator is just about mildly overbought having steadily declined since setting a +2yr record last Jul. As a result the broad market is hitting record highs with barely half of all stocks above their 200-day moving average and 52wk highs near negligible!.



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Sector Rotation Model Portfolio, as at May 16, 2014  


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Broad Market Internals, May 2, 2014  
Volume in Apr failed to match the improving trend in Q1 overall down only modestly on Mar, but with activity especially soft on the rebound in the second half of the month. Best readings were in Internet, Biotech (again), Medical Equip & Supplies, Specialized Cons Svcs, Pharma, and Travel & Leisure.

Separately breadth deteriorated further after starting to lag mid Mar, having previously been firm earlier in the year in contrast to the LT lagging trend. 52wk highs early Apr were little more than 1/2 of the 2m record set early Mar that amounted to around 2/3rds of mid May +2.5yr record, before ending the month near negligible with the best concentrations currently in Integrated Oil & Gas, Pipelines (again), and Gas Dist. Conversely 52wk lows are building just shy of the early Feb 15m record and concentrated in Internet.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - ended last week in neutral territory after the previous week falling just shy of extreme oversold levels that reliably trigger ST downside reversals. However, the 25-day indicator - which has recently done a better job of describing ST action - is also neutral but heading in the other direction having hit extreme oversold levels mid Apr.

At the same time the intermediate 50-day moving average is now mildly oversold, while the LT 200-day indicator is skirting with neutral territory, attesting to alarmingly narrow stock level leadership. Combined with increasingly weak 52wk highs the conclusion remains that the market is vulnerable to a correction of some magnitude.



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