6 Straight Weeks of Gains for the Major U.S. Indexes

As stressed over the past several weeks, after an 18-month consolidation period for the Dow, do not be surprised if we finally breakout, remain in overbought territory (Relative Strength Index over 70), and tread a bit higher-than-expected. Oftentimes, investors assume because we were at all-time highs that it was the right time to sell again. The reality is, if we sold every time at all-time high levels you'd miss out on the majority of the market's advancements!

This past week the S&P 500 traded in the $3070-3100 range. Every time we traded lower intraday and tested the lower range, the Street came in and bought the dip. This week of consolidation, once again, led to a breakout on Friday, 11.15.2019, where the S&P 500 closed at $3120.46. Truthfully, it was a fantastic close while the Dow reached a landmark level of $28,000. Currently, the S&P 500 sits within overbought territory, though positives in trade news and FOMO (Fear of Missing Out), could take the indexes slightly higher before a needed breather. Wednesday, we shifted nearly 8% of our portfolios into Bonds, Utilities, a little Gold, and Real Estate. Friday at the close shifted a bit more to these areas.

In the chart above, you will notice where the RSI level stands at 74.11 (overbought), the rally has extended for 6 straight weeks or a 9.3% gain from the intraday bottom in early October, the market traded out of the $3100 range, and the week of consolidation (blue channel) prior to Friday's breakout. Do any of these signals mean we can't go higher? No! We can certainly go higher, but based on the duration and speed of the move, we believe it wise to slowly begin backing off in hopes for a (2-5)% move lower. We are not allocated in Bonds, Gold, Utilities, and Real Estate because we think the world is ending. We allocated here because these areas touched oversold levels. Thankfully, the areas we allocated to actually have performed quite well for us during this period. Healthcare ($XLV), finally got an impressive bid (chart below is weekly performance).

We also wanted to show you the week's performance in the Major U.S. Indexes ($SPX, $DJA, $NDX) vs. risk-off areas ($TLT, $XLRE, $XLU, $SLV, $XLP $GLD). As you can see, the shift into these risk-off oversold areas actually paid-off for us.

While our rotations will NEVER BE TIMED PERFECTLY, we attempt to be realists in our analysis. We are happy to admit when we are wrong. Based on the duration and percentage gain over the past month and a half, we felt it necessary to begin trimming positions. As discussed, we might miss out on a little upside short-term, but another breather in the market would be healthy here.

We want to reiterate that we are not allocated the way we are because we think the world is ending. We do not believe a recession is in the cards within the next year. We are positioned for what we believe will be a slight breather in the market short-term. It would not surprise us to be back on the growth wagon in a couple weeks. As always, we will use price action to help guide us. We, once again, want to warn clients and readers alike: A (2-5)% DIP WILL BRING ABOUT RECESSION TALK! Remember, these are typical movements that occur several times within a year. Start preparing your emotions now! In reality, if we get a dip, we will be well positioned for the next rally. We believe we are in an environment where if you get a quick 6%, it might be wise to be a realist and take some gains. Could the market go 1-2% higher, short-term? Yes! However, it is to the point where I don't want to be a pig that gets slaughtered.

Overall, growth-names got a bid in the later portion of this week over the overbought value-names, which helped extend the current rally. There remain several names ready to break-out, though a little breather would be healthy here. We remain bullish through year-end with a potential target of $3200 or higher before year-end. Our current positions are short-term driven with the goal of staying flat to appreciating slight. We expect to shift back into growth in the next couple of weeks on any downward movements. As always, we will use price action as our guide and keep you apprised.

Have a great weekend!

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DISCLOSURE STATEMENT

This post is for informational use only. The views expressed are those of the author, Jonathan M. Gurney. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed.