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The stocks of nearly four of five industry sectors are at or near overbought levels, say strategists at Citi, as a separate market sentiment index from Morgan Stanley turned negative.

Both are indicative of the huge rally from October lows that is showing signs of difficulty in being maintained. The S&P 500 index on Wednesday saw it’s biggest one-day dive in three months.

The S&P 500
has gained 22% this year, the Dow Jones Industrial Average
is up 12% and the Nasdaq Composite
has soared 41%.

Citi’s quarterly sector and industry group navigator, from strategists led by Scott Chronert, finds 19 out of 24 industry group at or near overbought readings — when last quarter, there were many oversold.

The Citi team says the rally from late October has been driven courtesy of lower interest rate expectations. “Thus, pullbacks should be expected, and bought into,” they say.

Morgan Stanley’s market sentiment indicator turned negative, after being neutral since Dec. 12. That indicator, which aggregates survey, positioning, volatility, and momentum data, suggests below-average one-week returns when it’s negative.

Momentum indicators such as the MSCI all-country world index 52-week high vs. 52-week low, and positioning indicators such as the CFTC data on S&P 500 net positionns, have turned less positive.

“With overall sentiment now ‘stretched but reversing’, MSI has switched into a negative regime,” say strategists led by Serena Tang.

The Morgan Stanley indicator had turned positive in October, ahead of the rally.

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