It finally happened: For the first time since the year 2000, when the tech bubble was in full swing, the Nasdaq Composite has closed above the 5,000 level and is nearing the all-time high of 5,132. For investors that top ticked the market, it’s been a harrowing rise featuring a 78% meltdown in to the 2002 low.
But these are happy days; thoughts of bear markets couldn’t be further from the minds of investors.
The Dow Jones Industrial Average gained 0.9%, the S&P 500 gained 0.6%, and the Russell 2000 gained 0.8%. Crude oil gained 0.1% after testing above the $50-a-barrel level on a weekly inventory report from Genscape that showed the inventory build in Cushing’s tanks was softer than expected.
There was some M&A activity with chipmaker NXP Semiconductors NV (NASDAQ:NXPI) agreeing to buy Freescale Semiconductor Ltd (NYSE:FSL) in a $12 billion deal while Hewlett-Packard Company (NYSE:HPQ) reached a deal to buy Aruba Networks, Inc. (NASDAQ:ARUN) for $3 billion.
Instead of fireworks and celebration, Monday’s trading session was pretty somber amid more disappointing economic data and new evidence that Greece is in trouble. Stocks had the fewest quotes in six months (excluding holidays) as breadth was disappointing. There were only 648 net advancing issues on the New York Stock Exchange. And, as shown below, the percentage of S&P 500 stocks in uptrends continues to stall at levels first hit in September.
On the economic front, January’s personal income and spending data was flat with the prior December reading. This marks the first back-to-back drops in personal spending since the beginning of 2009. Moreover, the ISM manufacturing index fell to 52.9 in February from 53.5 in January, as shown below. And construction spending dropped 1.1% in January vs. December missing expectations for a 0.3% boost — helping to explain why lumber prices have been sliding lately.
Turning to Greece, there were reports that with tax collection lagging badly, the country could run out of money as soon as the middle of March. Athens is lashing out at leaders in Portugal and Spain, accusing them of undermining the first elected radical-left government in Europe since World War II for fear of the first of leftists within their own countries.
There are conflicting reports of a third bailout program under negotiation — something that Athens has denied.
Despite the ebullience shown in the Nasdaq, stocks have separated wildly from the fundamentals with both earnings and macroeconomic surprises rolling over. It’s an open question how long sentiment alone — via multiple expansion — can keep pushing stocks higher in this environment.
What we do know is that Wall Street pros and corporate insiders are stepping away. According to data from SentimenTrader, “smart money” traders are bailing out of this market at current levels — based on things like commercial equity hedging in the futures market — amid rapid multiple expansion and severe technical overbought signals.
For tech insiders, negativity has reached a five-year high based on data from InsiderScore. Clearly, those in the know are worried Nasdaq 5K won’t last.
But “dumb” money traders — measured by things like small speculative positions in equity futures — are bulled up in a way that hasn’t been seen since 2004.
In response, I continue to recommend a defensive stance focusing on areas of weakness such as Alcoa Inc (NYSE:AA), which Edge Pro subscribers bagging a 66% gain in the March $16 puts in a two-day holding period last week.
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