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Warning Flags Fly, But Stock Top Unconfirmed

On March 26 I wrote, Allocate U.S. Holdings to 14 Top Dow Stocks. Since this post two of these have been downgraded to hold. I will recap these and profile next week's earnings from nine Dow components on Monday through Wednesday. I still consider buy rated Dow stocks as appropriate names in an investment portfolio with allocations to stocks reduced by 50%.

On April 2 I wrote, Dow Utilities Outperform S&P 500 in First Quarter where I showed that stocks in this sector were heavily weighted to buy rated stocks. This sector is 7.9% overvalued, but among the 215 stocks in the sector we have 64 stocks rated strong buy and another 130 rated buy. The utilities sector contains 64.0% of all strong buy stocks in the ValuEngine universe. With 78.4% of all stocks in this sector buy rated, I give the sector an overweight rating.

The Dow utility average set a multi-year high at 524.35 on April 16 and is now the best performing index year to date, up 15.0% compared to 8.1% for the S&P 500.

To sum it up, the buy rated stocks have migrated to the safely of utilities stocks and the brand names of the Dow industrial average. The Dow transports and Russell 2000, which led to new all time highs in mid-March, are trying to lead U.S. equities into a bear market.

Looking at my semiannual levels, a weekly close below 1566.9 on the S&P 500 indicates risk to 14,323 Dow industrials. Annual and semiannual pivots have been magnets at 5925 and 5955 on Dow transports. The Russell 2000 remains well below its semiannual risky level at 965.51.

With the neutral zone between 14,323 Dow industrials and 1566.9 S&P 500 intact a market top cannot yet be confirmed but the warning flags wave. A weekly close below my semiannual value level at 14,323 on Dow industrials is my signal calling for a market top.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at
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