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Believe It, the Bull is Alive and Well

The market has now broken free from many major restraints


The Dow Jones Industrial Average and S&P 500 jumped to new all-time highs on Monday. But it was the technology and small-cap stocks that had the best performance with the Nasdaq up 1.8% and the Russell 2000 surging 2.4%.

Even though the Russell 2000 was the focus of attention, it is still down 6% from its closing high of 1,208.65, made in March. Investors shifted from the “risk-off” mode, driving the Dow Jones Utility Index down 0.9% on Monday. But the index is still the top Dow performer of the year, up 9%.

Some of the high flyers that have lost the most in the past month rebounded. Twitter (TWTR) jumped 5.9%, (AMZN) rose 3.6%, Facebook (FB) gained 4.5%, and LinkedIn (LNKD) rose 2.4%.

Q1 earnings have been generally better than expected. According to FactSet, with 91% of the companies in the S&P 500 reporting, earnings are on track to grow at 2.2%. Analysts had expected a drop of 1.1%.

In the rush for stocks, bonds took a hit. The yield on the 10-year Treasury note rose to 2.657% from 2.621% on Friday.

At Monday’s close, the Dow Jones Industrial Average gained 112 points to 16,695, the S&P 500 rose 18 points to 1,897, and the Nasdaq jumped 72 points to 4,144. The NYSE primary market traded 641 million shares with total volume of 3 billion shares, and the Nasdaq crossed 1.9 billion shares. On both major exchanges, advancers outpaced decliners by about 3.8-to-1.

RUT Chart
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Chart Key

It seemed a long time coming, but on Monday, the Russell 2000 reversed from a triple-bottom following twin buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), and a MACD buy signal. The break thrust the index up and through its near-term bearish resistance line at 1,120, as well as the 200-day moving average at 1,116. The next resistance is at the 50-day moving average at 1,156 and the April high at 1,160.

NYSE Chart
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The NYSE Composite includes every stock traded on the New York Stock Exchange. Thus, it is a broad cross-section of industry.

On Monday, the index broke to a new all-time closing high. But since early April, the index made several highs that smashed the prior records made in October 2007.

Conclusion: Even while two disparate indices, the Russell 2000 and NYSE Comp, were blasting to new highs, traders complained of low volume and the unlikelihood that what was occurring was anything more than a “gimmick by Wall Street.”

Jeff Saut of Raymond James revisited the old story of “Old Turkey,” a character from Reminiscences of a Stock Operator, written by Edwin Lefèvre in 1923, who constantly reminded his listeners to never lose sight of the main drive, the long-term direction. He made his money, and lots of it, by sitting tight with good-quality stocks.

Jeff points out that most investors have never experienced a secular bull market. Their experience in the markets started just 10 years ago, so they did not witness the 1923-1929, 1946-1964 or 1982-2000 bull markets that resulted in huge gains for investors who held quality dividend-paying stocks.

Sitting tight can make you a lot of money, and many of you have enjoyed success by following my chart of the S&P 500 with a 17-month moving average and abiding by its signals. I publish the chart on the first day of each month. (See the latest here.)

Trading can be fun and rewarding, but please open your eyes and minds and recognize that we have broken free from many major restraints, and the beaten-down technology and biotech stocks are now cycling into a rebound that will likely drive them to new highs. They are finally ripe for the picking and holding.

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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