We make no Sector changes but have made a number of stock changes to position ourselves for 2021. Generally, we have removed some weaker or more speculative charts, and replaced them with bigger names.
Last month, we upgraded XLB to an Overweight, and downgrade XLRE to an Equal Weight. We generally do not do major changes before an election. Looking at the charts, there is no need to make changes in any event.
For some time, we had been looking for a low in July, and while Accumulation Models suggested it would not be a full retest, there was a good chance for a steep pullback. Instead of a pullback, the cycles produced a flat market, and now stocks have started to rally again.
The weekly stochastic for XLI is a sell recycle, and the daily stochastic is coming down to oversold. This normally suggests consolidation, but the move above 70 improved the chart enough to upgrade it. The accumulation model on XLI remains one of the stronger units.
Our Over Weights remain XLV and XLRE. These are both strong Accumulation Models. We had thought about downgrading XLRE, but last week’s performance has been very strong in accordance with the accumulation models, so we will hold this for now.
Our underweights are XLE and XLB. The reason for the underweight in XLE is that the sector has one of the weakest Accumulation Models and has weakened. XLE has broken support and still has no buy indication. XLB has broken the December 2018 low, and the accumulation model has weakened.
SPY has continued the 2019 rally into January 2020, per our forecast. Breadth indicators have improved, but sentiment remains a concern. Small Cap has moved above the key 82 area on IJR, and there is an accumulation model buy signal on Transports. Our major trend system is positive at 3/1, with Small Cap being the only negative index.
Our overweights are still XLF and XLRE. These are both strong Accumulation Models. If we are making a mistake it is that XLRE is too defensive but both XLRE and its Accumulation Model have continued to hit new highs.