Both the Dow Jones Industrial Average and the S&P 500 remain solidly in the positive column for 2013; the benchmark indices year-to-date are higher by a little more than 7% and 6%, respectively. Moreover, both indices are within arm’s length of re-testing and possibly shooting past their all-time highs set back in October 2007.
(As a side note, the Russell 2000 index of mid-cap stocks broke past its all-time highs in January and thus far has not looked back.)
Recent sentiment indicators show that investors are again giddy to participate in the market. While such information often serves the smart money with a sign of caution, given the still “all-in” approach of central banks, stocks might have some upside left in them yet.
At present, the Dow Jones is a mere 1% away from its October 2007 high of 14164. The S&P 500 for its part is currently just about 4% from the October 2007 highs at 1576. So, when will these two indices pierce through their all-time highs? Well, barring any major unknown unknowns in the near future, spring should usher in another surge in stocks.
To present this more visually, let’s flip through a few charts.
The first chart shows the Dow Jones and the S&P 500 movements during the past six years. Not surprisingly, given the broader selloff in 2008 and rally off the 2009 lows, correlation between the two indices was and continues to be high.
The Dow currently sits at a longer-standing uptrend resistance area. The index did, however, spend the past few weeks consolidating its rally off the November lows, and as such, this churning below resistance could soon lead to a breakout and move toward 14200 and 14400 eventually. Mind you, these levels are better used as reference areas than perfect spots to place stop or profit orders.
In terms of the S&P 500, the 90-day chart of this index shows that the recent 3% correction brought it back to the bottom range of its up-trending channel, where it bounced strongly. A break above the 1525 level should allow the index enough boost for a fair try at the all-time highs near 1576.
In summary, new highs in both the Dow Jones Industrial Average and the S&P 500 might not be too far away. But it’s important to note that the longer the rally continues, the more selective the group of stocks that continue higher along with the indices.
As such, playing the rally via an index ETF — in this case, the SPDR S&P 500 ETF (NYSE:SPY) or SPDR Dow Jones Industrial Average ETF (NYSE:DIA) — might just make sense.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.