Friday’s trading was odd in that each of the major indices closed modestly higher but arrived there by different paths. The Dow Jones Industrial Average opened higher, hitting its high of the day and then drifting lower until a rally in the last 30 minutes saved it from a loss. The S&P 500 opened higher, and then flat-lined until late in the day when it sold off and then recovered. And the Nasdaq started off higher and retained its gain throughout the day.
Perhaps it was the incoming blizzard that created the disparities, but despite that, the S&P 500 rallied to a five-year high, the technology sector drove the Nasdaq to a 12-year closing high, and the Russell 2000 small-cap index and the Dow Jones Transportation Averages also set new record highs.
The Dow closed at 13,993, up 49 points, the S&P 500 rose 9 points to 1,518, and the Nasdaq gained 29 points to close at 3,194. The NYSE traded just 578 million shares and the Nasdaq crossed 410 million. Advancers exceeded decliners on the Big Board by 2.2-to-1 and on the Nasdaq by 1.7-to-1.
For the week, the Dow fell 0.1%, the S&P 500 gained 0.3%, and the Nasdaq rose 0.5%.
In the early minutes of Friday trading, the Dow exceeded a five-year intraday high by 3 points and is just 171 points from 14,164, the old closing high.
As noted, the S&P 500 set a new five-year high at 1,518. And it is just 58 points from an all-time high.
The Russell 2000 hit a new all-time high. It is in the clear with no resistance above it — as is the Dow Jones Transportation Average (not shown).
The Nasdaq performed a breakaway gap on its daily chart, establishing a new 12-year closing high; the prior closing high was 3,184 made last September. It is just 3 points from the 2012 high of 3,197 (see Feb. 6 Nasdaq chart).
Conclusion: These charts have high visual impact, and despite investors’ fears (which is a market positive), they graphically show what a genuine bull market looks like when it “climbs a wall of worry.” Those who disagree with this are still “fighting the tape,” to use another Wall Street axiom.
What should long-term investors do now?
1. Sell long-term bonds and bond funds, except high-quality muni bonds and high-yield bond funds (junk bonds).
2. Increase buying of floating-rate bonds and floating-rate bond funds like BlackRock Floating Rate Income Strategies Fund (NYSE:FRA) (see Feb. 7 Trade of the Day), and Treasury Inflation Protected Securities (TIPS).
3. Increase large-cap buying, especially those stocks with above-average dividend yields.
4. Increase exposure to microcaps with unique products or processes.
5. Buy the best-performing ETFs and their stocks, like builders, banks and financials, some techs associated with cloud computing, and some emerging market ETFs.
As for traders, you should mostly focus on the long side of the market. If you sell short in this market, you are running against the tide, and in the long run, will have more losses than gains.
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.