Except for the DJIA, DJUA, and NY Composite, which were all down slightly, every other major index advanced today. Record highs were broken in some, and almost every index posted a recovery high at least intra-day. However, with an hour to go in the regular trading session, most major indices were actually in negative territory on the day. If the market had closed at that moment, sell signals would have been triggered across-the-board in my computer trading system. Buyers seemed to appear out of nowhere late in the day (again), and another positive day was posted.
Here are today’s closing marks, with changes from Tuesday’s close:
Dow Jones Industrial Average 13,982.91 - 35.79 -0.26%
S&P 500 Index 1,520.33 + 0.90 +0.06%
NASDAQ Composite Index 3,196.88 +10.38 +0.33%
Russell 2000 Index 920.58 + 3.06 +0.33%
Price action so far this year looks very much like the start of 2011 and 2012. In 2011, after a very strong start, there was a minor correction that began in mid-February, but new reaction highs were soon posted until the real top in early May that year. In 2012, the stock market rallied for three straight months to start the new year with no meaningful correction and then topped out in early April. Maybe this year will be like 2012, with no correction until April. Or maybe this year will have a minor mid-February correction just like in 2011 before the rally resumes to new record highs. No one can say for sure, but I remain convinced that a mid-February high will be followed by a correction of at least 10%.
Bottom Line: Without a negative catalyst, the bulls are in control and the current advance seems to represent the path of least resistance. It’s not hard to imagine a dozen different potential negative catalysts which could derail this rally and trigger a meaningful correction. However, I don’t think the bulls are worried about any one of those dozen potential catalysts (at least the ones we can imagine). And maybe that’s the right attitude and also the right stance (to be fully invested)? The bearish case right now may be more about the potential vulnerability of the market (with so many fully invested) to potential negative catalysts that we can’t see (i.e. the so-called “Black Swan” event). On February 1st, the Dow Jones Industrial Average closed at 14,009.79, its first time above 14,000 in more than 5 years. Today, the DJIA closed at 13,982.91. Hard to believe this closely-watched market barometer is actually down over the last 12 days, but it’s true. Most other major indices have done better, but not by much. The S&P 500 Index is up only 0.47% over the same period. The Risk/Reward ratio in owning stocks just doesn’t look favorable to me.
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