Market indicators remain supportive of a moderate overweight in US stocks and short-term pullbacks should continue to be buying opportunities, according to Andrew Burkly, Portfolio Strategist at Oppenheimer.
Burkly and his team use an Equity Risk Model made up of 10 indicators, comprising a mix of technical, fundamental and sentiment data (see Table). Overall the indicators were little changed at the end of May compared to the end of April. Only one indicator changed signal during May, which was the Participation Divergence indicator moving from bearish to neutral. Thus there are now six bullish indicators, three neutrals and one bearish indicator.
Burkly says, “The indicators that are keeping the model from being more bullish largely reflect the lack of any signs of short-term oversold conditions or excessive pessimism. This is a key reason why we continue to argue that short-term market pullbacks are likely to be better tactical buying opportunities, as they would create the short-term oversold conditions that would potentially set up a stronger rally.”