For U.S. investors looking to profit in the near term, the best offense may be a good defense.
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"Defensive investing" becomes a mantra for investors who are seeking to navigate periods dominated by high risk, slow growth or excessive uncertainty. Given that the current market outlook probably contains an element of each of those scenarios, a strategy that includes elements of care and caution will make for a wise course of action.
This is actually a healthy thing, and will likely include a pause in the broader market. But all indicators point to the prospective pause being just that - not a new bear market, just a time out as overfed risk appetites take a breather before being reinvigorated.
Despite the emphatic negative trading session we saw on Friday, most of last week was rather buoyant, with a net gain in the broad market averages. Yet measures of internal market health continued their slow deterioration, with much more volume appearing on down days than up days.
My belief: U.S. stocks are in the process of remedying the overbought condition created by the big upward move in the first week of the year, as well as the overbought condition that's visible on some monthly charts.