The bull market in stocks is roaring and it’s likely headed higher. But stocks have risen so far and so fast that they’re overextended and due for a correction, cautions Mary Anne and Pamela Aden, editors of The Aden Forecast.
This will provide a good opportunity to buy even more of the strongest stocks and increase our stock allocation in the strongest market sectors.
Wall Street believes growth will pick up under Trump and it’s convinced his policies will be good for business. That’s the main reason why consumer sentiment is surging too.
Like Wall Street, Main Street is optimistic and this is good news for stocks. As we’ve often noted, the stock market looks ahead.
And contrary to what many believe, it’s telling us good times are coming in the months ahead. This is being reinforced by nearly all of the stock indexes and our leading indicators.
The Dow Industrials and the Dow Transportations, for instance, have been the market leaders. And they have confirmed each other, by hitting new simultaneous highs.
This is confirming a final Dow Theory bull market signal. Again, this doesn’t happen often and it’s further reinforcing this bullish outlook.
For now we continue to recommend buying and holding select stocks and ETFs including Alcoa (AA), US Steel (X), iShares Dow Jones Dow Transportation (IYT), PowerShares Dynamic Leisure & Entertainment (PEJ), and the SPDR S&P Insurance ETF (KIE).
Other new stocks we like are the SPDR KBW Bank ETF (KBE), the iShares Dow Jones US Financial Services (IYG), the Energy Select SPDR (XLE), and among individual stocks, Microsoft (MSFT)
But since stocks have risen far and fast, they’re now overextended and poised for a downward correction.
That would provide a good buying opportunity, so you may want to buy new positions gradually to take advantage of the possibility of lower prices.
