Happy New Year Stocks bounced last week on very light volume and are now sitting right below multiple layers of resistance. Even with last week’s bounce, stocks are still in a downtrend.
The advance we saw in stocks last week has taken the McClellan Oscillator to 101.55 which is indicative of a somewhat overbought market. This should put downward pressure on stocks this week.
All three breadth indicators (S&P 500 Bullish Percent Index, NYSE High-Low Index, and the NYSE Summation Index) have turned positive.
Normally when all three breadth indicators turn positive I would be looking to increase our stock holdings. However, this turn occurred over a holiday week in which volume was very light. So I take this positive development with a grain of salt.
Stocks are sitting right under heavy resistance and are slightly overbought. In addition, the trend of the market is down. I feel that the odds favor stocks continuing to fall. However, the upturn in my three breadth indicators is a positive signal. So I will be looking at this week’s market action to possibly resolve this conflict.
Last week I added a 25% holding of TLT (a Treasury Bond ETF) to all client accounts.
Aggressive accounts are 25% invested in TLT and 75% in a Money Market Fund. Conservative accounts are 25% invested in TLT, 30% invested in High Yield Municipal Bond Funds and 45% in a Money Market Fund.
I hope everyone has a wonderful holiday!!
Craig Thompson, ChFC