an tSionna: Stocks Over Bought

BeSpoke Investment Group noted the above factoid yesterday:

"Following today’s rally, 77.6% of the stocks in the S&P 500 are trading more than one standard deviation above their 50-day moving averages. Since the S&P 500 reached its all-time peak back in 2007, there have only been three other periods where more than 75% of the S&P 500 was trading at overbought levels." BeSpoke Link: Stocks Over Bought.

BeSpoke is simply giving voice to what some of our other shorter term indicators are telling us. These indicators, such as percentage of stocks trading above their 40 day and 200 day moving averages, are showing extreme levels of being over bought.

The playbook calls for caution in periods like this hence our short term Net Market Negative decision which we discussed here and here back on September 23rd. Click this link for a definition of what Net Market Negative means.

While the normal thinking would be for stocks to stage some sort of retreat, it is also possible that stocks will spend some time now simply churning around in a 3-5% range. Stocks can correct by price {a decline} as well as time {churning action} or a bit of both.

Regarding our current game plan, we remain at investment levels appropriate to our account strategies that we've had in place most of the summer. This translates that we've done very little selling in client accounts as we are neutral/positive on stocks in our intermediate and longer term time frames.

However, we have established defensive levels where we will raise appropriate levels of cash per client mandates and per our investment strategies should our indicators tip us more to the defensive side of the ledger. There are also certain defensive hedges we are looking to employ in some of our more aggressive investment strategies if our indicators suggest a larger decline is possible.

*Long ETFs related to the S&P 500 in client and personal accounts.