The NYSE closed just shy of a record level, while technology and growth stocks helped to add (+239) more new highs on Wednesday. Energy and material stocks are noticeably weak relative to the S&P 500 Index, so we will steer clear of them.
New Highs at Record Level
New highs are outpacing new lows, peaking similar to the reversal seen back in December 2018, when bears pushed the markets to extremes in the opposite direction.
While seasonality is typically strong in the first quarter, it is the current strength that has compelled us to reduce risk over the past week. Note seasonality typically peaks in April (N = 10 years).
In addition, AAII has bullish percent at 59.4, up from a prior reading of 57%. Bullish readings above 55% typically call for a more defensive posture, another reason for our recent profit-taking.
While it’s important to give your winners room to run, trimming positions in the strong performers always make sense. Tighten your stops in stocks near 52-week highs.
Watch for rotation. Earnings tend to be one of the catalysts as investors use the reports to sell on the news. Upgrades should be suspect.
“Memory Chipmakers Spike After Morgan Stanley Sees Pricing GainsThe firm raised its price target on Micron $MU to $73 from $56, and its Western Digital $WDC target to $88 from $64, not far from the Street-high view of $90.”
Technology tends to peak relative to the market around this time of year, pausing after the run-up in prices through the fourth quarter.
Considering the above, and our thoughts during the LIVE broadcasts, we will continue to get more defensive. As an example, our position in AGG is breaking out. Bonds appear to be strengthening.
Futures are a bit red and slightly below the best levels of the morning.
Please note, all “new” positions will be day trades, as swings are becoming riskier to hold overnight. We should wait for signals.
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