Katie is a technician that I respect very much. She is the Chief Market Technician for MKM Partners and is very much involved with the Market Technicians Association. She thinks that the Pullback is maturing and is looking for buying oppurtuinities in some oversold stocks.
Last week we saw a spike in the CBOE Put/Call equity ratio suggesting that sentiment is not too complacent and really its greed that characterizes market tops. Her target for the S&P500 is about 1420-1440 and the path of least resistance is higher. Not to say that we can’t see another correction before we get there but as of right now the market looks higher over the next several weeks at a minimum.
Investors should be seeking out those oversold names (25% of S&P500 is oversold) and looking at sectors of the market that are oversold on a relative basis, so that would be more the cyclical areas of the market as opposed to some of the more defensive areas like the healthcare sector, utilities, and staples that are overextended. XLV, the Healthcare Sector ETF, is overextended and showing resistance left over from the 2007 highs still remains in a long term downtrend relative to the S&P500
She thinks the Risk/reward is pretty favorable at least for the next couple of weeks. Katie expects a new recovery high for the S&P500 before a more significant correction so we should be buying stocks that are oversold and prefers the Industrial and Consumer Discretionary Sectors.
Talking Numbers: Buying Opportunities for Investors (MSNBC Video)