U.S. Stock Market - Climbing a Wall of Worry

Most major U.S. stock market averages advanced into positive territory this afternoon following relatively weak morning dealings, as investors shrugged off concerns about the potential negative ramifications of sequester spending cuts. News from China that heavy new taxes would be imposed on profits earned from runaway housing prices was also a negative for U.S. stock investors early today. Despite all the gloom this morning, the Dow Jones Transportation Average managed to post an all-time record closing high today (6,045 +1.00%) and the Dow Jones Industrial Average is now only 37 points from also posting its own all-time record closing high.

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

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                     14,127.82        +38.16             +0.27%           

S&P 500 Index                                                1,525.20        +  7.00             +0.46%

NASDAQ Composite Index                             3,182.03        +12.29             +0.39%

Russell 2000 Index                                            916.68        +  1.95             +0.21%                       

The record closing high in the DJIA is 14,164.53 as set in October 2007. And the record intra-day high for the DJIA is 14,198.10. It seems now that both these records will be broken sometime over the next two trading days. However, I don’t believe that the all-time record high from October 2007 in the S&P 500 Index at 1,576.10 will be broken before the next significant correction begins. The S&P 500 Index has to advance 3.33% from today’s closing level in order to post a new record high.

For your review, the monthly bar chart for the S&P 500 Index is attached below, with all my computer-based buy & sell signals reflected.

Bottom Line: Bullish stock market investors continue to draw strength from accommodative monetary policies from the Federal Reserve and relatively friendly comments recently from both Fed Chairman Ben Bernanke and Fed Vice Chairman Janet Yellen. “Don’t fight the Fed” is the rallying call, and traders can expect most major stock market averages to forge ahead again tomorrow and maybe early Wednesday as well. The Dow Jones Industrial Average will probably advance to at least 14,200 before a meaningful correction begins. As a technical analyst, I would like to see a “blow off top” above Dow-14,200, then a significant intra-day downside reversal to trap the bulls before declaring the end of this extraordinary advance. I continue to believe that the remaining upside potential for this rally is not worth the potential downside risks.

S&P 500 Monthly Bar Chart with Computer-based Buy & Sell Signals