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Market Makes New Highs, but I Still Say Wait

Until market clears the cluster of resistance by at least 1%, a sudden negative event could turn it south


Despite a slow start, due to pro-Russian movements in Crimea, stocks rallied and sent the S&P 500 to a new closing high. It was the third attempt for the index in six weeks and was assisted by the testimony of new Federal Reserve Chair Janet Yellen. There were no special highlights in Yellen’s testimony, but it was clear that she intends to continue the policies of her predecessor.

Durable goods orders fell 1% in January compared to a revised 5.3% decline in December. And initial claims increased to 348,000 from a downwardly revised 334,000 last week.

At Thursday’s close, the Dow Jones Industrial Average gained 74 points at 16,273, the S&P 500 gained 9 points at 1,854, and the Nasdaq was up 27 points at 4,319. The NYSE traded a total of 3.5 billion shares, and the Nasdaq crossed 2 billion. Advancers outpaced decliners on the Big Board by 2.1-to-1, and advancers were ahead by 1.8-to-1 on the Nasdaq.

SPX Chart
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Chart Key

Finally the S&P 500 registered a new closing high. And even though it squeaked ahead by less than 6 points, we’ll take it. The fact that the broad index made a new closing high on a day of heightened international tensions adds to its significance.

Nasdaq Chart
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As noted ad nauseam, the small- and mid-cap stocks have been pulling the big indices ahead for months. Thursday was no exception, as the Nasdaq jumped to a new 13-year high, and the Russell 2000 small-cap index, made a new all-time closing high.

Conclusion: The broad-based S&P 500 finally closed at an all-time high on its third attempt. And, as mentioned, it moved ahead in the face of international tensions and economic stress.

Another positive is that although some of our internal indicators are overbought, the sentiment numbers are still quite skeptical. For example, this week’s AAII Sentiment Survey reported a drop in bullishness to 39.69 from last week’s 42.22.

As observed many times before, price action trumps everything. However, it would be wise to invest only in stocks with high momentum and solid fundamentals. Until the broad market clears the cluster of resistance by at least 1%, along with a pickup in volume and breadth, a sudden negative event could turn this high-P/E market south.

“Discretion is the better part of valour.” — Shakespeare “Henry IV.”

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.

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