Our plan since November has been to let current exposure run (you never want to fight the Fed and Tape) but not add exposure given the overbought condition.  Despite the 5% gain in the S&P 500 (SPX) from when we began expecting a pullback, our indicators continue to suggest the same game plan and there are signs of less enthusiasm underneath the surface.  For example, despite the new highs every day in the major indices:


  • Only 59% of SPX components are trading above their respective 10-day moving averages
  • The cumulative advance/decline lines for the market that measure the breadth of an advance are only just above their late December levels suggesting it is just the few mega-caps that are driving the gains.
  • The small cap Russell 2000 is retesting the relative performance low of the year and cycle.  In other words, the biggest stocks are outperforming the smallest ones.

Again, we don’t want to come across as negative but we also don’t want to walk into a temporary air pocket that could erase the gains since late last year.  Our data still suggests that is possible given the overbought condition.


Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expensesAll data points are sourced from Bloomberg as of 01/09/20 unless noted otherwise.

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