The Market Rally Resembles a Dog On a Bone

The story behind the current rally only seems to take on more color with each passing trading session. The risk-on trade opened the new holiday-shortened week right where it left off, with high-beta stocks taking charge, sending the Nasdaq to a fresh 13-year high. The latest move higher for the tech-heavy index has been led by the stocks that encompass the Internet economy and healthcare.

The second of two mega-deals in as many weeks is also powering investor sentiment, as Actavis (ACT) announced they will acquire Forest Labs (FRX) for $25 billion. This deal follows the $45 billion buyout of Time Warner Cable (TWC) by Comcast (CMCSA), and sends a solidly bullish message to investors that valuations aren’t stretched.

Commodities are also getting in on the action, as global natural resources giant BHP Billiton (BHP) posted fourth-quarter results that easily beat expectations. Crude oil is up again by $2.28 to $102.41/bbl, natural gas is higher by $0.35 to $5.56/MMBtu, grains are higher across the board and gold is ahead by $4.90 to $1,323.50/oz.

The dollar index (DXY) is trading at a two-month low at the 80.00 level, which is worth keeping an eye on, as a break down from this level will draw a lot of attention. The next technical level of support is 79.00, and that would signal some near-term trouble for the greenback. But with the degree to which the central banks have mastered the manipulation of debt and currency markets, I’m not expecting any fireworks. This is more of a broad observation at this point.

Once again, bonds are in rally mode, with the 10-Year Treasury yield falling back to 2.71% amid reports that the sentiment reading for homebuilders was lowest since the gauge was created back in 2006. It was excused — as was the latest retail sales report — due to foul winter weather conditions. With that said, capital flows for equities and high-yield assets continue to be sourced from money markets and other cash equivalents, and not from the bond market as would normally be the case.

So the bottom line is that it’s all working — stocks, bonds, oil, gas, gold, you name it.

At this juncture, I wouldn’t be surprised to see some hot money come off of the table this week, as so many charts of leading stocks look stretched. On the other hand, most of the charts of my high-yield holdings have very constructive formations in place, and that should invite a further rise in prices given that there are few other places investors can go for any meaningful yield.

As long as the market wants to blame it on the weather…let it snow, let it snow, let it snow.

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