Gavekal Capital: Late Cyclical (Dead Cat?) Bounce Today

Thursday, October 16, 2014

Late Cyclical (Dead Cat?) Bounce Today

While the DJIA finished slightly lower for the 6th consecutive day, the MSCI North America Index managed to squeak out a 20 bps gain. Late cyclical sectors were by far the strongest of the 10 sectors today.

This makes sense to us since these three sectors have exhibited the weakest momentum (i.e. most oversold) recently. For example, before today, only 7% of Energy stocks were trading above its 200-day moving average compared to 68% for the Utilities sector.

From a performance perspective, late cyclicals have also been the weakest sectors as well. Year-to-date, Energy and Industrials have been the worst performing sectors in North America and only another cyclical sector, Consumer Discretionary, has been worse than the materials sector.

Overall, we would not read anything into today's price action as the trend below seems strongly intact.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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