A quick look at a chart of the SPDR S&P 500 ETF (SPY) shows mostly sideways action with a slight upward bias towards the top end of the range this year.
We are still in the mindset that the upward trend is intact until we get more price data to confirm a turn lower.
Right now we are monitoring some key developments including weakness in small cap stocks relative to large caps, utilities, consumer staples, and other defensive areas.
Small caps tend to be more economically sensitive which means that if the market is starting to roll over, they will most likely lead on the downside.
Conversely, if we get a positive jobs number this week, small caps could be a great short-term trading opportunity for another trip back up near the highs.
It’s make or break time for the iShares Russell 2000 ETF (IWM).
Another key opportunity we are monitoring is continued strength in developed European economies.
The Vanguard European ETF (VGK) recently broke out above its consolidation and appears to still be in a very strong up-trend.
We like this sector moving forward from both a technical and fundamental standpoint.
Right now our game plan is to use additional weakness or summer volatility to add to our existing international positions for clients.
From a seasonal standpoint, we’re now exiting the strong growth months and entering a historically lackluster period.
That means you should be extra vigilant about positioning your portfolio in the areas that represent the strongest chances for success.
One of the best strategies this year has been to simply be cautious with a healthy dose of low-volatility large cap stocks, fixed-income, and even cash on hand to take advantage of new opportunities.
I believe this theme will continue for the foreseeable future, and as such, you should be flexible with your asset allocation to control risks.
Patience and discipline will be rewarded with additional tactical themes as a result of shifting trends that you can use to your advantage.
We will have additional thoughts on the market as well as our current watch list in our exclusive monthly client memo next week.
This article is brought to you courtesy of David Fabian from FMD Capital Management.