The Dow Jones, as well as a number of other equity indices, has recently achieved new all-time price highs. Was it really a question this would occur? We do need to remember we’re now just edging above price levels seen almost six years ago in 2007 and thirteen years ago in early 2000, and on an inflation adjusted basis we’re still close to 20% below old highs.
There is an endless parade of “experts” that will go on TV or send you a free copy of their newsletter telling you emphatically what is going to happen in the market. They will also tell you why what is happening shouldn’t be happening and give you an often complex reason for why things are happening.
Stocks breached record new highs this week as the Dow Jones Industrial Average joined a burgeoning group of indexes hitting new all-time highs with the S&P 500 just a stone’s throw away from joining the group.
The dollar has rallied through the month of February as a result of a number of bullish catalysts. Technical support, Italian elections, FOMC minutes, and ECB meeting expectation were all reasons to be bullish on the dollar. I believe these items are behind the dollar and it’s time for a correction. It could also be inferred that a rally is due in commodities. The only thing holding back a dollar correction is a strong employment number tomorrow. That question will be resolved soon.
What happens when markets get over-bought? The answer is supposed to be: They go down. Yet most of us have been around long enough to know that things don’t always work out as they’re “supposed to.”
The big news today is that the DJIA closed on an all-time high, moving past the high from October 2007. The SPX, like the DJIA, opened higher and then spent the rest of the day digesting the move.
Technically speaking, the biggest concern right now is the recent decline in breadth. Near the end of January better than 85% of stocks in the S&P 500 were above their respective 50 day moving averages. Now just over 65% of S&P members are above their 50-day moving average.
Too often investors play the ball and not the whistle. They have an idea of what SHOULD happen but fail to see what IS happening and do not listen to the ultimate referee for investing—the market. If you believe we are heading into a bear market and/or recession and yet the market continues to hit new 52-week highs and the ISM Manufacturing Index remains north of 50 in expansionary territory, how long will you wait before the whistle blows?
I wanted to discuss some technical relationships I’m starting to see in the market that might shed some light on recent events. The goal is to help us identify corrections and rotations in the market between various assets classes and stock sectors.
The cyclical sectors of the market have been weakening over the last few weeks which was warning of the possibility for a pullback. However, the cyclical sectors are leading the way today after bullish commentary from the world’s two biggest central banks.
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