Upward Momentum continues---reducing exposure

The upward momentum in the US Stock market has continued this week. The S&P 500 Index is now up 10 days in a row, an event which has only occurred one other time since the index was created. While this momentum bodes well for the market in the intermediate term, many of the technical statistics we follow are now in extremely overbought territory.



A look at the daily S&P 500 chart also shows that relative strength (red line) is at the 70 level. This is also an overbought level and while it does not guarantee a short term market reversal , the S&P 500 will usually struggle to advance from these levels without at least a slight retracement.

















(click on any chart to enlarge)

We have reduced our exposure by approximately 50% in the MWA Active ETF portfolio.
We are still positive on the intermediate term , but would like to re-enter the market at levels that are not as overbought.





SECTOR RELATIVE STRENGTH

An indicator I look toward to determine where to be invested is the sector relative strength indicator. The sector relative strength indicator compares the market strength of each sector to every other market sector. We use that data to determine which sectors and stocks we want to overweight in our portfolios. In the equity market, the sectors currently exhibiting the strongest relative strength are the financial (XLF), technology (IGM) , and the consumer discretionary sectors (XLY) . On the fixed income side the high-yield (HYG) and emerging market debt sector (EMB) continue to exhibit superior relative strength. If you are looking for areas to add exposure you may want to lean toward these sectors.