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Indices Pull Back; Trim Positions, Protect Gains

The major indices pulled back on Friday, with the NYSE registering a distribution day. Distribution now stands at four for the NYSE versus just one for the Nasdaq Composite, not at ominous levels. Even so, the market is beginning to show signs of coming under pressure. Going forward, we want to see current holdings tighten up and consolidate constructively without violating key support or triggering stops, while the major indexes avoid stacking additional distribution days. At this stage, we recommend harvesting profits in extended names or, at a minimum, back stopping stops to protect gains in stocks that have become stretched from proper buy points. At the same time, attention should stay focused on high-quality setups—particularly leaders building the right side of new bases or emerging through sound pivot areas. A pullback will likely manifest itself rotationally as opposed to taking all stocks down like a bear market. Exposure should be reduced in lagging stocks and any positions that trigger predetermined stop levels. Sector performance on Friday was broadly negative, with Energy (+0.9%) the lone area to finish higher. Basic Materials (-4.3%) led the downside, followed by Consumer Cyclical (-2.8%) and Utilities (-2.3%). Looking at the past four weeks, Technology was the strongest-performing group (+10.0%), followed by Energy (+7.7%). Meanwhile, Basic Materials (-6.2%), Utilities (-4.8%), and Health Care (-3.4%) were the weakest areas. Hot CPI and PPI readings, combined with the 10-year Treasury yield emerging from a prolonged base, have put inflation and interest rates squarely back in focus. Rising yields are becoming an increasingly important variable for equities, particularly as they impact valuation-sensitive growth areas of the market. Oil is another key area we are monitoring closely. A decisive breakout to new highs in crude would likely add further inflationary pressure and create an additional headwind for stocks. At the moment, the recent uptick in inflation has effectively tied the Fed’s hands. Expectations for near-term rate cuts continue to fade as policymakers remain focused on preventing inflation from becoming entrenched again. As a result, any incoming economic data that reinforces the higher-for-longer narrative on inflation and rates will likely weigh on the market and increase volatility. https://t.co/JXzFFTmMtn