We are still looking at the possibility of a fall correction, so we make no changes at this time. Since indicators are not suggesting an end to the bull market it is more appropriate to use weakness to add to attractive groups and sectors than to make changes we would quickly reverse.
We replace NKE with this stock as that broke out on a gap and looks tired. MCD is a high-level consolidation that should hold in a correction and could test 252 on a rally, where it goes to a hold.
This month, we will move XLRE to Equal Weight, and XLU to Under Weight. XLRE is starting to trade in line with a strong accumulation model and should experience a summer rally. XLU, as a defensive sector, may lag this summer.
XLB is a breakout above the 2017 high. The long-term price pattern was less robust than other strong sectors because it is a newer breakout out but has big potential, now being realized.
This month, we will stick with our sector weightings. As always, stocks in this report come from the constituents of the Sector ETF. The last stock changes are performing well and position us for 2021.
This month, we make some sector changes to position ourselves for 2021. Our changes reflect a market that has experienced rotation instead of a full-fledged correction in the first quarter of 2021.
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.
Watch Small Cap and the Transports – these economically sensitive indexes have continued to improve in the last month, and this should continue into the end of the year.
Last month, we downgraded XLRE to an Equal Weight. This month we move to an Underweight. Accumulation Models have weakened further, and we have concerns about Real Estate and Banks going into 2021.
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.
Watch Small Cap and the Transports – those economically sensitive indexes have started to improve but this needs to continue for a strong market in the second half.
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.
The market could retest the lows but is trading better. Watch small cap. If small cap performs better, then it may forecast less of a recession than consensus estimates.
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.
