Stocks Under $10 Portfolio: Consumer Staples Overbought

 | Jan 22, 2017 | 12:00 PM EST
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The following is an excerpt from the Stocks Under $10 Weekly Roundup originally sent to Stocks Under $10 subscribers on Jan. 20. Click here to learn more about this dynamic portfolio managed by David Peltier.

U.S. stocks moved fractionally lower this week, which was shortened by the Martin Luther King, Jr. holiday, as earnings season started to ramp up. Volatility picked up ahead of monthly options expiration and as traders continued to position for potential policy changes in a Trump administration.

On a technical basis, we're seeing overbought readings in a couple of areas, such as measured by the Investors' Intelligence bull/bear reading. Defensives areas, such as consumer staples and utilities have moved into overbought territory, while the health-care sector has pulled back to a neutral position.

We entered 2017 with an above-normal cash position of 40% in the model portfolio and would consider putting some of our funds to work on a further market pullback. In addition to potential new names and those listed on our Bullpen, we'd look to purchase Builders FirstSource (BLDR) , Jive Software (JIVE) , TherapeuticsMD (TXMD) , if there are continued declines in the near term.

On the economic front, we'll get several looks at the housing market and regional economic readings. On Friday, we'll receive the first reading of fourth-quarter GDP growth, which is expected to come in at 2.2%, down from 3.5% in the third quarter.

While the focus was largely on earnings this week, we did hear commentary from several notable FOMC members, including chairwoman Janet Yellen. Fed funds futures are currently pricing in just a 4% probability of a rate increase at the next meeting on Feb. 1 and a 74% chance of at least two increases by the end of 2017.

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