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Jeffrey Saut: The call for this week

* January 9, 2017

As SentimenTrader pointed out on Friday:

Despite a new all-time high in the S&P 500, there were more declining securities than advancing ones on the NYSE. The amount of volume flowing into those securities was the 5th-worst ever on a day the S&P hit an all-time high. And the percentage of issues reaching a 52-week high wasn't far behind, also lagging badly. The last time breadth was this bad at an all-time high in the S&P was the bull market peak on March 24, 2000.

Moreover, the equal-weight S&P 500 did not join its more common, cap-weighted cousin by making a new all-time high (Chart 2), and small cap stocks, which led for most of this recent rally, have finally started to slacken. So, market breadth does seem to be slumping a bit, which is often a preamble to weakness in the major averages, and we could start to see traders position themselves for short-term trading top coinciding with the inauguration. Therefore, if you are looking to take profits and reduce equity exposure, this coming week may be a good opportunity to do so. The anticipated weakness in the coming sessions should not significantly impact more long-term investors, and may finally give those who missed out on the election rally a chance to buy in, but it is cause to remain vigilant. The “big test” for the S&P 500 I have mentioned recently remains its place as resistance (Chart 3), and, unless we can rise above that level (roughly 2280-2285), there may be limited upside in the near term.

https://www.raymondjames.com/wealth-management/market-commentary-and-insights/investment-strategy

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