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Tuesday, July 16, 2013

It May be Time to Cash in Some Speculative Holdings

monday (Photo credit: Robert Couse-Baker)
Overbought conditions and a historically weak period of returns make this a safe strategy

Citigroup (C) opened Monday’s session with a gain following better-than-expected earnings and revenues. This sparked a rally in the financial sector.
Several lagging sectors (utilities, REITs, and other higher-yielding groups) responded as investors who sought higher yields nipped away at bargains created by the recent rush into technology and other more growth-oriented sectors.
At Monday’s close, the Dow Jones Industrial Average was up 20 points to 15,484, the S&P 500 gained 2 points at 1,683, and the Nasdaq was up 7 points at 3,607. The NYSE traded 567 million shares and the Nasdaq crossed 347 million.

Chart Key
Despite the concerns of many technicians that the market is “overbought” and due for a correction, the trend in both high and low-quality stocks is very bullish.
However, it is likely that the speculative stocks, as represented by the Russell 2000 index, are more “overbought” than the staid NYSE Composite, which is “slightly” overbought rather than “somewhat” overbought. These are not technical terms, but rather define a comparison of the two indices.
Those technicians who closely follow overbought/oversold indicators are persuaded that within a week the market will experience a correction. The McClellan Oscillator is now more “overbought” than at any time in the past 12 months.
And StockCharts.com notes that there is a historically weak period from July 17 through Sept. 28. S&P 500 data since 1950 show an annualized return of 21.48% for July 1-17, but a -2.04% return for July 17-Sept. 28.
Conclusion: Perhaps it is time for speculative accounts to cash in some profits while still remaining partially invested. Putting away some cash for future investment is almost always a good strategy.
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