After the extremely volatile shortened trading week our Newton models have started to show deterioration. The models favor smaller-sized companies compared to large caps once again while overseas markets remain a bright spot for the fifth week in a row. Short-term duration is grading out relatively better, likely due to investors pricing in a more dovish fed, on the margin, in the months ahead.

We saw less constructive price action as we came out of the gates last week. The index couldn't push through the very important downtrend line and 200-day moving average and remained pinned in a tight, yet volatile, trading range. Bulls and bears are in a battle on positioning and we will hopefully get more certainty on who ultimately triumphs this week.

As we pointed out last Tuesday, breadth expansion has been positive in the new year but we are now reverting from severely overbought readings, which could mean selling pressure as investors take profits in the short term. The fear index, or the VIX, is starting to creep back up from yearly lows, which implies further volatility in the weeks ahead.

Among sectors, the only area screening out well according to Newton is Energy. Picking names with relative strength within sectors has remained the dominant and most effective strategy.