Date: January 21, 2021

A Crack in the Pavement

Sitting here on Inauguration Day watching the markets shoot to new highs, I found myself complaining that so many of our positions were not participating in the rally that saw the major indices higher by 1.50% to 2.50%. That is unusual behavior. Now, I am not talking about the major indices we own like the S&P 500 and NASDAQ 100. Of course, they did fine. I am referring to our sector holdings and individual stocks.

When I looked closer at the market, I noticed that the number of stocks rising and falling on the day was much narrower than I would have expected given the magnitude of the rally. Additionally, the volume associated with rising and falling stocks was barely 50/50. Yes, I know it is only one day, but that’s a sign of something brewing beneath the surface. It could rear its head sooner or later, but more days like Wednesday will give me pause.

I use warning sign days to make sure I really like what I own and I am willing to sit through a decline with those holdings. Over the past few days I have shed a number of smaller sized sector positions and concentrated on the few where our models have the highest conviction. Until or unless I see the NYSE A/D Line rollover with higher stock prices or junk bonds become weak, I am viewing any and all weakness in the stock market as a buying opportunity.


Paul Schatz, President, Heritage Capital