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Stocks hit new all-time highs last week, but we were hit with our first real barrage of selling in months. Markets are stable this morning, although I hesitate to give the “all clear” signal just yet.

Last Monday, we noted how bears crept back into the tape by bidding up the healthcare sector, which is rather defensive in nature.

Bulls may be disappointed to hear that the bears’ momentum continued into Friday’s close. The question now is whether it will continue this week - I get the sense that it will - but let me explain how I see this playing out… (JUMP)

Near-Term Pain, Long-Term Gain
 

A few weeks back, we noted how cracks started to emerge in the rally. Bulls pressed on and bid the market back to new highs, but the momentum behind the rally wasn’t as convincing.

Now we have another situation where, for two weeks in a row, defensive sectors are leading. Two weeks ago it was healthcare, last week it was utilities. This is not an environment where bulls should be forcing the issue.

But here’s the context - if you zoom out onto a longer-term time horizon - it’s still looking bullish at a year-to-date and 1-year interval. So, I see this as an environment where patience is going to pay the most for bulls. 

In other words, wait for some money flows back into sectors like tech, communications, or consumer discretionary. That’s the signal we need to start pressing to the upside gain.

As always, I’ll keep you posted.

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