On the shortened trading week, our Newton models are starting to show strength in equities while fixed-income areas remain mostly unchanged. The models show more relative strength out of smaller-sized companies compared to larger sized. Additionally, overseas markets remain a bright spot for the fourth week in a row.

We saw more constructive price action last week from the technical side. Markets furthered their march out of the extremely tight range they found themselves in for most of December and early January. Traders' fears were eased as they saw that inflation continued to come down which helped the S&P 500 return to a very important level once again, the downward sloping trend line and 200-day moving average.

Throughout last year we saw multiple rallies to these key levels before selling off to lower lows. Now, as we see breadth expansion and some better data on inflation, it will be interesting to see if we can buck the trend and continue on for a sustainable and investable rally. Though we have cleared some short-term hurdles recently, the next big one is likely 4,100 on the S&P 500. The fear index, or the VIX, is near one-year lows, which could mean complacency has crept into the market as short-sellers and hedgers have been forced to unwind positions.

Among sectors, the trend favors Materials, Energy, and Real Estate names while more defensive sectors like Staples, Health Care, and Utilities are grading out poorly. Picking names with relative strength within sectors has remained the dominant and most effective strategy.