I guess I sound like a broken record lately. The broader markets in North America are overbought. Yet, they refuse to stage a healthy correction. The last correction on the S&P 500 took place from early to mid-December (a 5% pullback), following an 8% correction during November. The index has advanced since the December correction in an extremely tight line. Witness the high white-candlestick (up-day) count and lack of volatility, which you can see visually and through the dramatic drop in the VIX – although I do note a small rise in the VIX of late – today’s pullback adding to that indicators rise. Momentum indicators such as RSI, MACD and Stochastics have been overbought for 2 weeks, and may just be starting to round over. The S&P 500 is also within spitting distance of its summer highs, which represent a fair chunk of resistance.
Its extremely rare to witness a market not take a break when displaying these characteristics. As such, I’ve reduced the risk for the equity portfolio I manage professionally through owning a few more low beta and dividend paying stocks, along with holding about 20% cash. I’ve got a shopping list of stocks I’d like to buy upon a correction into the 1280 – 1300 area for the S&P 500. Don’t be surprised if a correction occurs very, very shortly on the markets. BTW–I had to post late this week due to a holiday, but I’ll be back on Monday per usual next week.