The SPX is overdue for a correction. It showed signs this week that maybe the correction finally started, but the bounce today off the 20-day keeps the SPX within its uptrend that started the day after the election.
Junk bonds took a beating this week. Generally, I find that weakness in junk bonds is not a good sign for stocks, particularly small caps.
Energy stocks had a bad week, although they showed some signs that they are finding support just under the 200-day.
Friday – Sentiment
The Investor’s Intelligence Newsletter Writers Sentiment Survey showed the number of bulls falling for the first time in quite awhile. From a contrarian point of view, the number of bulls is still far from the buy range, but at least it is finally moving in the right direction. The II survey has worked well for me for many years.
The AAII survey is shown below. The 4-week average of the Individual Investors bull-bear spread looks like it is on target for a late March bottom.
The put/call ratio has a way to travel before it provides a buy level such as early November. My guess is that we won’t get another really good correction until the summer. But you have to decide for yourself because I don’t really know.
Sectors
The market leaders continue to perform well. I thought the Semis would weaken, but they turned things around and took the top spot. Home Construction is red hot right at the moment. Biotech consolidated their gains a bit, but they look like they could hit new highs next week.
The drop-offs were the inflation-sensitive foreign stocks, along with the small and mid caps. The charts don’t look too bad, but they are no longer leaders.
What happened to the REITs? Higher rates work against this group, but I can’t help but think that the slow death of the shopping mall is finally undercutting commercial real estate.
