Market Update & Portfolio Reallocation at the end of December/beginning of January

Posted by Thackray Market Letter

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I have divided up the cyclical seasonal strategies, such as metals & mining, materials and industrials, into two seasonal legs. The first leg starts in October/November and ends at the end of December/beginning of January, and the second leg starts in late January. Although there is only a few weeks in between the seasonal periods, in these weeks the sectors often underperform the S&P 500. This is not a call for investors to exit the markets, but for those more nimble investors to rotate into broad market exposure on a short-term basis. If the cyclical sectors have strong momentum at the end of December and are outperforming the S&P 500, seasonal investors can continue to hold positions in the sectors. There is never anything wrong with running back to the broad market on a temporary basis while the sector action establishes its seasonal patterns.

MARKET UPDATE: S&P 500 Technical Status

The S&P 500 is still reaching all time highs and is currently in an overbought condition. Despite the market being overbought, it does not mean that a correction will take place. The graph below is almost identical to the graph last month. Technically speaking, the trend of higher highs and higher lows is still in place, and until it is broken, the price pattern of the S&P 500 is still considered to be bullish. We are currently in the sweet-spot of the six month favourable season: the three strong contiguous months of November, December and January. Seasonal investors should continue to take advantage of the positive trends at this time of the year.

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