U.S. Stock Market - Impressive Advance

Today’s gains in most major U.S. stock indices were the best since January 2^nd. The Dow Jones Industrial Average surged to a 5-year recovery high and ended today convincingly above the closely-watched 14,000 level. Favorable January home sales data from the National Realtors Association set a positive tone for stocks early today. And for the second straight day, this time in testimony before Congress, Federal Reserve Chairman Ben Bernanke strongly defended the Fed’s bond-buying program and he repeated that the potential costs do not outweigh the benefits. Bernanke said that the Fed’s goal is “to keep interest rates a little bit lower to help support housing, automobiles and other parts of the economy that need support”.

Here are today’s closing marks, with changes from Tuesday’s close:

Wednesday’s Changes            

Dow Jones Industrial Average                       14,075.37        +175.24           +1.26%           

S&P 500 Index                                                1,515.99          +  19.05           +1.27%

NASDAQ Composite Index                             3,162.26          +  32.61           +1.04%           

Russell 2000 Index                                           909.92           +    9.87           +1.10%                       

For your review, the daily bar chart for the Russell 2000 Index is attached below. This index was the leader for most of the rally which began on November 16^th, 2012 and ended on February 20^th, 2013. While most major U.S. stock market averages are once again near 2013 highs, the Russell 2000 Index has yet to retrace even 50% of the losses it sustained from February 20^th to this past Monday. After today’s extraordinary single-day advance, bearish traders don’t have much to hang their hats on, but this “non-confirmation” by the Russell-2000 Index is probably significant.

Bottom Line: The rebound in U.S. stock prices from Monday’s lows can only be described as impressive. While yesterday’s advance was mostly predictable, today’s surge was unexpected by me. The Dow Jones Industrial Average is now only 90 points (0.64%) from its record closing high set on October 9^th, 2007. And the DJIA is only about 123 points away from its actual intra-day record high set on October 11^th, 2007 at 14,198.10. Both these records could easily be eclipsed tomorrow. However, the S&P 500 Index needs to advance about 4% from today’s close to eclipse its all-time high, and small-cap stocks are now starting to show weak relative strength as compared to big-cap stocks. An interesting scenario now would be for the Dow Jones Industrial Average to post a record high which would then confirm the recent record high in the Dow Jones Transportation Average, and thus get all Dow Theorists bullish at THE TOP. In the same scenario, I would like to see the Russell 2000 Index fail to make a new all-time high, which would set up a significant non-confirmation and a technical sell signal. Tomorrow and Friday are key trading days, and for the bearish case to have credibility, I think most major stock indices should be reversing to the downside by early next week at the latest. And despite today's weakness, I remain extremely bullish on Gold/Silver mining stocks.

Russell 200 Index Daily Bar Chart with Computer-based Buy & Sell Signals