U.S. Stock Market - New Highs

Most major U.S. stock market averages recorded solid gains today, with some even posting all-time highs (i.e. Russell 2000 Index and the Dow Jones Transportation Average). The S&P 500 Index and the Dow Jones Industrial Average both advanced to 5-year highs. Increased M&A activity, ongoing positive corporate earnings reports, and a general feeling among investors that global recession fears may have been overblown were factors supporting share prices today.

Here are today’s closing marks, with changes from Friday’s close (Monday was a U.S. Holiday):

                                                                                    Tuesday’s Changes                  

Dow Jones Industrial Average                     14,035.67          +53.91             +0.39%           

S&P 500 Index                                                1,530.94          +11.15             +0.73%           

NASDAQ Composite Index                             3,213.59          +21.56             +0.68%           

Russell 2000 Index                                            932.00          +  8.85             +0.96%                       

For your review, I have attached the latest daily chart of the Russell 2000 Index. This index is now up 9.71% year-to-date so far in 2013. The S&P 500 Index is now up 7.34% year-to-date so far in 2013. Please note, that no sell signal has been generated by my computer-based trading system for the Russell 2000 Index or the S&P 500 Index since a buy signal was triggered in both these indexes on November 16^th. The Russell 2000 Index is up an incredible 22.06% since its intra-day low as posted on that day.

Most sectors of the market were “in sync” with the major market averages on the upside today. While homebuilders and mining shares were noteworthy exceptions here, the overall market was persistent on the upside and looked relatively strong all day.

It may be worth mentioning that if investors had been on the sidelines since the close on February 1^st, they would have missed a 1.17% advance in the S&P 500 Index, a 1.08% increase in the NASDAQ Composite, and a paltry 0.18% gain on the Dow Jones Industrial Average. Today’s market rally represented most of the total gain that was posted over the last 19 days. The key question for investors today is whether or not there will be enough upside potential from here to justify buying stocks now? Perhaps another question that might need to be addressed is the character of the next potential stock market correction? Will there be time to get out of long stock positions before sellers begin to dominate? And what are the chances of an overnight downside gap (triggered by some sort of Black Swan event)?

Bottom Line: While today’s price action in most U.S. stocks was positive, I don’t believe the potential rewards of further upside activity justify the potential risks now facing investors for a significant correction immediately ahead. While “sideline cash” earns almost nothing right now with short-term interest rates near zero, this may actually be the best option for conservative investors. More aggressive investors may find value in beaten down mining shares (especially among precious metals stocks), but investments in that sector are clearly speculative.

Russell 2000 Index Daily Bar Chart with Computer-based Buy & Sell Signals