Like he did last week, Jeff Saut is warning that this rally is clearly getting fatigued. Or at least it should be:The call for this week: Eight of the S&P 500’s macro sectors are currently overbought. The two that are not, Financials and Telecom, are a neutral value by my pencil. Meanwhile, 88% of the SPX’s stocks are above their respective 50-day moving averages, leaving the index well overbought. Further, the SPX is at the top of its Bollinger Band, a chart configuration that occurred right before the January – February and the April – July declines of this year (see the nearby chart). Moreover, the D-J Industrial Average has traveled into formidable overhead resistance as it tested the April “highs” last week; and, today is session 37 in my day-count sequence without anything more than the perfunctory one- to three-day pause/pullback in the upside skein (read: pretty extended). Accordingly I am cautious, but not bearish, believing the equity markets are going to make some kind of trading top over the next few weeks. I also believe any pullback is a buying opportunity. Therefore, instead of randomly “buying” right here, I prefer to wait and see which stocks resist the envisioned decline. As for where to “park” cash, in addition to the often mentioned Putnam Diversified Income Trust (PDINX/$8.09), over the past few months I have had numerous fixed income PMs suggest that Bank Loans are the most undervalued “space” in the fixed income arena. Typically, Bank Loan maturities are five years or less, ameliorating much of the interest rate risk. Further, corporate cash flows are at all-time highs, suggesting the best credits out there are corporations. Drilling down into this strategy, I had lunch with a PM from Pioneer Funds recently (Ken Taubes) who agreed that Bank Loans are the place to be in fixed income. Unsurprisingly, the fund he recommended was the 4.8%-yielding Pioneer Floating Rate Fund (FLYRX/$6.87). Another such fund, for your consideration, was recently recommended by Raymond James’ mutual fund research department, namely Mainstay’s Floating Rate Fund (MXFAX/$9.40). I continue to invest, and trade, accordingly.
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