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So, we rang a big bell on Friday, closing at an all-time high. The dynamics of overextension persist, but the market is not especially overbought:
- SPY: .54
- IWM: .55
- DIA: .67
- QQQ: .06
Looking at the sectors, though, gives a little different picture, with the following somewhat alarming: Staples (XLP) at 1.33, Health (XLV) at 1.32 and Utilities (XLU) at 1.06. This suggests to me that we could see some rotation, with a modest bias lower. I am on the record with a call for 5-7% pullback from 1590 - this works out to 1480-1510. With that said, maybe we don't get there, maybe we go further! I don't really have any update yet to the framework I previously shared - still waiting for the sign of a top, and it's not yet there. 61 of the 100 stocks on the Watchlist closed above the 10dma.
Looking at the Watchlist ( Download Watchlist032813 ), no stocks moved more than 5% during the week. We had some adds and deletions, but there are now 28 "black 1s".Looking at oversold names, LQDT, CATO, VOLC, UNFI and FDO are all between -1.03 and -1.73. On the prospects list, ANV is -2.31, while ULTA has improved to -1.48. AAPL is -1.11. The action is really on the overbought side, with all of these >1.5: FLO (3.11), HRL (2.56), BDX (2.18), ENV (2.08), JNJ (2.01), WAG (1.89), AVP (1.62) and CFN (1.58). INT came on while CE fell off the 35% expected return list. I wonder if I should lower the threshold again? I still remember not too long ago that the cut-off was 50%. There are some good ones that are coming in at 30%+, which, if my numbers are right, is still pretty good (CE, VOLC, ATX, UNFI). I sure like ATX and UNFI, but I can't fit them in the model at this time. IRG at 29% is good stuff too!
Looking at positions in the models ( Download Positionwatch032813 ), I adjusted the target on CSTR higher, reflecting a higher estimate from the street and raising the PE from 12.5 to 13.5. I also reduced CATO a bit further. As I look at CG/B, I am tempted to reduce exposure to JNJ and WSM, but I will be patient. I also wouldn't mind increasing CHS. In Top 20, I am evaluating CLH, as it seemingly doesn't offer a ton of upside and there are some issues, like the CFO departure and questions about the wisdom of their recent deal.
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