Last week, I wrote how risk of a 5% pullback was rising, and this week, uncertainty remains high enough to suggest selling rallies in sectors with demand headwinds so that cash can be used to buy better businesses where demand tailwinds are strongest.
My caution stemmed from a surge in our overbought indicator, which gauges optimism and fear by calculating the percentage of institutional-quality stocks in our universe trading 5% or more above the 200-day moving average (DMA). In January, 55% of our universe was 5% or more above its 200 DMA, prompting us to