Chris Ciovacco

About the Author Chris Ciovacco

Chris Ciovacco is the founder and CEO of Ciovacco Capital Management (CCM), an independent money management firm serving individual investors nationwide. The thoroughly researched and backtested CCM Market Model answers these important questions: (1) How much should we allocate to risk assets?, (2) How much should we allocate to conservative assets?, (3) What are the most attractive risk assets?, and (4) What are the most attractive conservative assets? Chris is an expert in identifying the best ETFs from a wide variety of asset classes, including stocks, bonds, commodities, and precious metals. The CCM Market Model compares over 130 different ETFs to identify the most attractive risk-reward opportunities. Chris graduated summa cum laude from The Georgia Institute of Technology with a co-operative degree in Industrial and Systems Engineering. Prior to founding Ciovacco Capital Management in 1999, Mr. Ciovacco worked as a Financial Advisor for Morgan Stanley in Atlanta for five years earning a strong reputation for his independent research and high integrity. While at Georgia Tech, he gained valuable experience working as a co-op for IBM (1985-1990). During his time with Morgan Stanley, Chris received extensive training which included extended stays in NYC at the World Trade Center. His areas of expertise include technical analysis and market model development. CCM’s popular weekly technical analysis videos on YouTube have been viewed over 700,000 times. Chris’ years of experience and research led to the creation of the thoroughly backtested CCM Market Model, which serves as the foundation for the management of separate accounts for individuals and businesses.

Defensive Leadership: A Showstopper For Bull Market?

Consumer Discretionary Underperforming

The chart below shows the performance of consumer discretionary stocks (NYSEARCA:XLY) relative to consumer staples (NYSEARCA:XLP). For most of 2013, discretionary sectors were leading defensive sectors (ratio was rising in 2013). 2014 has been a different story with more conservative stocks, such as Proctor and Gamble (NYSE:PG), taking on a leadership role.

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Is This A Major Red Flag For The Bull Market?

While there is no question defensive leadership speaks to a more tentative market, have the bulls ever remained in control under similar circumstances? This week’s video provides some historical insight, along with how the Fed may be impacting the XLY vs. XLP ratio. Video clip here.

Earnings Provide Some Insight

Dean Foods and Toll Brothers both provided some backing for the bullish case Monday by reporting better than expected profits and sales projections. From Bloomberg:

“The numbers in the third quarter showed a steady economy, we continue to have oil below $80, consumers feeling confident, low interest rates, and that’s a combination that works well for stocks,” Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading LLC, said by phone. “Central banks have also been quite accommodative in what they’ve been saying and it seems to be working.”

Investment Implications – The Weight Of Evidence

If defensive leadership becomes a problem for the current rally, deterioration in the market’s tolerance for risk will begin to spill over into other areas, something that we have not seen yet. In fact, the observable evidence continues to show improvement, allowing us to reduce exposure to conservative assets (NYSEARCA:TLT) while increasing exposure to equities (NYSEARCA:SPY). With a relatively light economic calendar this week, the market’s may focus on earnings in the United States and abroad.

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