S&P 500 Ignores Grexit, Checks 2,100 Off Its Bucket List

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Stocks roared to new highs on Tuesday thanks in large part to a last-minute blip at the closing bell that pushed the major averages out of negative territory.

In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained 0.1% to finish at a new all-time high of 2,100.34, the Nasdaq gained 0.1% and the Russell 2000 gained 0.2%.

It wasn’t enough that negotiations between Greece and the European establishment broke down in acrimony on Monday, as U.S. markets were closed for the Presidents’ Day holiday. It wasn’t enough that the European Central Bank could potentially pull its support of the Greece financial system as soon as Wednesday. And it wasn’t enough that, heading into the closing bell, Greek officials said they would ask for an extension of its lending program with a freezing of its bailout requirements — something that the German finance minister quickly shot down.

S&P 500

Investors are feeling good about the chances of a last-minute deal to prevent a “Grexit” and believe the tough talk from both sides is nothing but bluster. This, along with ongoing strength in crude oil (which in turn is boosting energy stocks), has whipped investors into frenzy, according to the latest Investors Intelligence survey.

The share of bulls increased to 52.5% for the week, up from 49% the week before; while the bears slipped to 15.2% from 16.3%. The spread has widened to levels not seen since the end of December. Higher risk appetites can also be seen in the inflows pouring into high-yield bond funds, totaling nearly $9 billion over the last three weeks — the largest on record — according to Bank of America Merrill Lynch.

For reality-based analysts, it’s all a little much. The rise in crude oil, for instance, has been driven by falling rig count data (down 34% from the October peak) as well as capital expenditure cuts by drilling companies. Still, with production pushing higher and inventories near 80-year highs, analysts continue to warn that prices will likely push lower again to encourage actual output cuts.

In fact, Citigroup warned that prices could briefly trade as low as $20 a barrel.

citigroup surprise index

Also, the U.S. economic data is rolling over as shown in the Citigroup Economic Surprise Index above. After peaking late last year, the index has collapsed rapidly back to early 2014 lows as a variety of data points — from factory orders to retail sales and consumer confidence — have missed to the downside.

On Tuesday, we got soft readings on the housing market via the NAHB housing market index and factory activity via the Empire State Manufacturing Index.

There’s more.

The Economic Cycle Research Institute, which maintains its forward looking Weekly Leading Index that has shown an eerie ability to peer around the corner of the economic cycle and divine what lies ahead, has fallen to levels not seen in three years — a level that, outside of the current economic expansion, has only been seen seven other times since the 1970s. Six of these marked the start of recessions.

Technically, there are problems with the rally we’ve seen since the end of January. Basically, it’s been all about Apple Inc. (AAPL), which is up some 22% from its low last month on excitement over its new bond issue denominated in Swiss francs and a big production order for its upcoming Apple Watch.

NYSE

Outside of AAPL stock, the action has been more tepid: The chart above of the NYSE Composite Index — which takes a broader, more inclusive look at what’s happening in stocks — is still mired in the trading range that started last July. For the fourth time, we are testing resistance near 11,100. Breadth remains disappointing, with only 72% of the stocks in the S&P 500 in uptrends vs. 76% in December and 85% last July.

Consider that on Tuesday, despite the push to new records, there were 434 net declining issues on the NYSE.

This is a dangerous situation, with expectations so high and separated from the situation on the ground that it won’t take much disappointment for reality to come rushing back in. Maybe that’s why the CBOE Volatility Index, or the VIX — Wall Street’s “fear gauge” — increased 7.6% for its first gain in a week helping push up the portfolio recommended to Edge subscribers by 0.4% after a gain of 23.3% in January.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/sp-500-ignores-grexit-checks-2100-off-bucket-list/.

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