There is more effort to understand the rally under the hood. On that score, there are many measures known as market breadth to assist in assessing the true level of strength or weakness. Our three favored metrics were positive yesterday, although the overall volume was light (not a sign of strength).

Market Breadth	NYSE	NASDAQ
Advancers	1,700	2,606
Decliners	1,112	1,610
New Highs	152	237
New Lows	26	104
Up Volume	2.44 billion	4.00 billion
Down Volume	1.87 billion	1.60 billion

Other measures of market breadth were mixed, although the Volatility Index (VIX) underscores a worrisome calm.

Fear & Greed

The market is back into the ‘extreme greed’ zone. But this gauge is too simplistic.

Only six sectors were higher.

It's true buyers kicked tires and dipped into Energy (XLE), as oil made a big move. Real Estate (XLRE) continues to attract those investors who believe Commercial Real Estate (CRE) has hurt non-CRE in a profound way that’s created opportunity.

CRE concerns also cast a shadow over banks and Financials (XLF).

The Rally Gets Stretched

After another closing record high, volume is waning, and the rate of change is slowing. Moreover, according to the Relative Strength Index (RSI) level, the S&P 500 is now an overbought territory.  

At this point, it would be better for the rally to pull back soon and test support. On that note, 4,800 would be a good test, and the 50-day moving average is slightly lower.

Of course, guessing when a market will top out can be a ‘fool’s errand,’ but watching gains turn into losses is even more foolish. We will continue to try to be nimble even if we err on the side of ringing the register too soon if we stay in the game.

Moreover, we are trying to balance gains against risk. Making 20% on a low Beta stock can be better than 30% on a high Beta if a pullback is on the near-term horizon.

Watching Small Caps

The Russell 2000 (and, to a lesser extent, the S&P 600) are extremely undervalued compared to the S&P 500. That statement must be put in proper context, however. Michael Jordan has more championship rings, but that doesn’t mean I will ever have a championship ring (unless I own a team one day-wish me luck).

Still, deep-pocketed investors are swayed by these things. The same deep pockets that have been reduced to chasing stocks that were written off long ago.

Yesterday, major indices were up fractionally, except the Russell 2000 +1.50%. We have been combing this space for a while, and will have ideas, but won’t force them.

Rooting for Red

Look at this (below). When the winning team in the Super Bowl has red jerseys, the stock market goes on to have a very strong yearly performance.

At this point, we’ll look at any indicator. LOL

Enjoy the game.

Portfolio Approach

We are adding a new position in Technology in the Hotline Model Portfolio this morning. To get ideas like this, and so much more, subscriber to our Premium Hotline Service.  Email your account representative or Info@wstreet.com to join today. 

Today’s Session

It remains a picture of calm, which means all engines are go.

Headline CPI was revised lower, but the core was unchanged.  There was speculation weather distorted the data.  I always find it weird that Wall Street is surprised when it gets cold in wintertime.

 

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