Stocks started strong yesterday, reached a plateau at noon, and traded there until a late rally drove the indices to new highs. The S&P 500 closed above 1,400 for the first time in almost four years and is on pace to achieve its fifth straight weekly advance and its tenth advance in 11 weeks.
The banks led the way again with the KBW Bank Index up 2.7%. The two leading sectors were the financials, up 1.9%, and the industrials, up 1.2%.
At the close, the Dow Jones Industrial Average had gained 59 points at 13,253, the S&P 500 rose 8 points to 1,403, and the Nasdaq gained 16 points at 3,056. The Big Board traded 843 million shares and the Nasdaq crossed 452 million.
All of those who are skeptical of the recent breakouts of the major indices should reevaluate their mindset. Back in February, they feared that the bank consolidation was proof that a false breakout in January occurred when the banks jumped 15% in a month.
But three days ago, the Financial Select Sector SPDR (NYSE:XLF) broke from a consolidation, which was really a bullish rectangle, and now threatens to exceed highs of February 2011. We’ve been saying all along, “banks are a buy.” And they still are a buy.
Our readers know of my concern over the lack of a Dow Bull Market Confirmation from the Dow Jones Transportation Index. But yesterday, the transports made up for lost time by advancing over 169 points (3.27%). In just a few sessions they, too, could break to a new high providing the long-awaited Dow Buy Signal.
Most investors can’t forget the drubbings of the Tech Wreck and the collapse following the attack on theTwinTowers. These emotionally damaged investors may never buy stocks again. They just cannot climb their own personal “Wall of Worry.” Meanwhile, the institutions steadily commit resources while the public still waits for “The Correction” that may not come until they finally decide to take the plunge.
But what of the long-term bull market target that could result from the recent breakout as the signal for a much higher target?
The S&P 500’s recent breakout is still within the bull channel that began at 1,000 in mid-2009. However, the index is at the top of the channel and looks overbought.
But like many of the stocks that make up the index and have already pierced the top of their bull channels, don’t look for a quick pullback. Instead tenacious institutional buying could pop the index through the top of the bull channel and thrust it close to the bottom of the diamond formation of 2007.
Therefore, my guess is that the primary objective (target) is the midpoint of that diamond at 1,535 and that the current run will reach its first objective at the bottom of the diamond at approximately 1,450.
The message that I want our readers to consider is this: Don’t listen to the naysayers — they’ve already missed a big move and every tick higher convinces them that they are still correct in expecting a huge bear market. Smart investors always go with the primary trend, and that trend is clearly up.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.