Ounce of Caution
Deron Wagner says “An ounce of caution is warranted here”, based on the poor performance of ‘leading’ stocks yesterday:
In addition to yesterday’s perceived “churning” in the broad market, we also were disappointed with the action of most leading stocks. Though this newsletter focuses on ETFs, not individual stocks, monitoring the price action of top-performing stocks is a great way to stay on top of the health of the overall market. When a select group of top stocks is breaking out to new highs, it drives the broad market higher. But when those stocks suddenly start failing their breakouts, it’s often a leading indicator of a potential correction in the major indices. On January 5, a plethora of leading stocks surged higher while the main stock market indexes closed slightly lower. Yesterday, however, we saw the opposite action; many leading stocks sold off sharply while the broad market closed higher (only because of the opening gap up). This was not encouraging for the near-term direction of the broad market.
Gary Kaltbaum mentioned the same issue on his radio show last night, with stocks like MYGN and MCD as examples.
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