Nasdaq Hits New Records on Yellen, Housing

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nasdaq - Nasdaq Hits New Records on Yellen, Housing

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Stocks finished higher on Tuesday as the situation in Greece calmed a bit more and Federal Reserve chairman Janet Yellen did her best to sound both hawkish and dovish in her regular semi-annual testimony to Congress. She indicated that while the “patient” language — which translates into no rate hike for at least two policy meetings — could be removed next month, that didn’t guarantee a rate hike in June.

In the end, the Dow Jones Industrial Average gained 0.5%, the S&P 500 gained 0.3%, the Nasdaq gained 0.1% for its 10th consecutive gain, and the Russell 2000 gained 0.2%.

There wasn’t much action at the sector level as earnings-related moved seemed to be the dominant factor for the pockets of excitement in a relatively quiet session. Home Depot Inc (NYSE:HD) gapped up 4% thanks to a big Q4 earnings-per-share beat on better-than-expected same-store sales. Macy’s, Inc. (NYSE:M) dropped 3.2% on weak forward guidance — lifting the March $62.50 puts I recommended to Edge Pro subscribers earlier this week to a gain of nearly 37%.

On the economic front, there was good news in the housing market as the Case-Shiller S&P Home Price Index, on a month-over-month non-seasonally adjusted basis, posted an increase for the first time since August. On a seasonally adjusted basis, the index posted its best price gain since 2014. Prices, however, are still more than 16% below their pre-recession peaks.

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Bank of America Merrill Lynch economist Michelle Meyer is constructive on housing this year thanks, in large part, to a bounce in household formation as young adults — many admittedly saddled with the debts of higher education — finally move off of mom’s couch.

Folks are looking at prospect of higher wages amid the best run of job creation since the 1990s, and are taking the plunge: According to the University of Michigan’s consumer survey, folks are looking for income growth of 2% this year vs. 0.5% six months ago.

While some hurdles remain, including relatively tight mortgage credit conditions, home price gains look ready to accelerate as the winter gives way to the summertime peak in housing activity at a time when there are relatively fewer homes available.

As for stocks, technically breadth remains weak and sentiment looks overextended. The melt-up in Apple Inc. (NASDAQ:AAPL) pretty much sums up the market’s attitude these days. That has pushed the Nasdaq Composite to its 10th straight gain, closing at least at a one-year high.

S&P 500 bullish

According to SentimenTrader, the last time something like this happened was back in July 1997. The seven other times overall that the Nasdaq did this, performance was mixed going forward, with only one positive performance over the four months that followed.

Moreover, 40% of the indicators tracked by SentimenTrader are showing excessive optimism. There have only been two other times over the past two years where this happened — Sept. 19, 2012 and Dec. 31, 2013 — after which stocks suffered pullbacks of at least 5% over the months that followed.

With Greece and Yellen out of the way, renewed weakness in energy prices is likely to be the catalyst that normalizes the situation and reminds investors that, yes, stock prices can fall. In response, I’ve recommended the ProShares UltraShort Crude Oil (NYSEARCA:SCO) to Edge subscribers, with the position up nearly 18% since Feb. 18.

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

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