U.S. Stock Market - Looking Tired Now at Record Highs

The Dow Jones Industrial Average posted another record high today, but all the major indices look tired, even as they mostly finished in positive territory (just barely), The intra-day high in the DJIA was 14,320.65 in early morning dealings, and other major indices posted their intra-day highs around the same time as the DJIA (9.58 AM ET). However, the NASDAQ Composite actually opened at its best level of the day and then quickly slid into negative territory. After several feeble rally attempts, the NASDAQ Comp ended the day slightly lower. The standout performers on the upside today were Gold/Silver mining shares. Most of these stocks posted astonishing single-day gains of between 5% and 10% (more on this sector below).

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

                                                                                    Wednesday’s Changes            

Dow Jones Industrial Average                     14,296.24        +42.47             +0.30%           

S&P 500 Index                                              1,541.46        +  1.67             +0.11%

NASDAQ Composite Index                           3,222.37        -   1.77             - 0.05%

Russell 2000 Index                                           929.96        +  2.56             +0.28%                       

Today marks the 4-year anniversary of the current bull market. The last great bear market began in October 2007 from a peak in the S&P 500 Index at 1,576.10. The bottom came 17 months later on March 6^th, 2009 at 666.80, for a net loss of 58%. Wow! Today, the S&P 500 Index is still not back to its October 2007 record high, but it’s very close now at 1,541.46 (it won’t make it). This represents a 4-year gain of 131% (not including dividends). Over the last 110 calendar days, since the November 16, 2012 intra-day low at 1,343.35, the S&P 500 is up 15%. It’s been a great rally; probably one of the best ever!

For your review, I have included a daily chart of the S&P 500 Index below. All my computer-generated buy and sell signals are included in this chart.

Do anniversary dates mean anything? I like to look at major historical turn dates in the stock market as just one of many tools that guide my personal forecasting and related analysis. My strong feeling is that today’s intra-day highs in most major U.S. stock market indices will be the peak prices for this move, or at least very close to the ultimate top. Early tomorrow there could be one last ditch effort to post new highs that are barely above today’s best levels, but by the end of the day tomorrow I think most major indices will be in negative territory and the long-awaited correction will finally be underway.

Today’s rebound in the Gold/Silver stocks was incredible. The XAU Index and the GDX ETF, which are widely followed barometers in this sector, were both up about 4.2% today. Selected silver mining shares were actually up between 6% and 10% (AG +6.58%, AXU +7.67%, SSRI +7.11%, and EXK +9.75%). Daily chart buy signals were triggered in my computer system in AXU, XAU, AU, ABX, CDE, EXK, AG, GLD, GDX, GDXJ, GG, NEM, PAAS, SIL, and SLW. Today’s rally was so strong that weekly chart computer buy signals were also triggered in AXU, EXK, FSM, and GG. All these stocks are in the Gold/Silver mining sector. Incredibly, this exceptional upside action came while Gold itself was only up 0.56% and Silver gained just 1.26% today. Was today’s rebound just a flash in the pan for Gold/Silver stocks? Or is this the beginning of a major advance for this under-weighted, oversold, and greatly under-valued group? From my chair, a major advance probably began today in the Gold/Silver mining sector. In the interest of full disclosure, I am long EXK in some of my managed accounts. For your review, I have included the Daily Bar Charts of the popular Gold and Silver ETF’s (GLD  & SLV), and both charts reflect all computer-generated buy and sell signals. Please note that a buy signal was triggered in the Gold ETF today, and two buy signals were triggered in the Silver ETF over the last 7 trading days.

Bottom Line: With most major stock indices at or close to record highs, and the current bull market now exactly 4 years old, it would only be natural for profit-taking to unfold sometime very soon. However, I strongly believe that this next correction will be more than just “profit-taking”, and instead will develop into a major correction. When will this expected downturn begin in earnest? My best turn date now is tomorrow, March 7^th, ahead of the Monthly U.S. Employment Report scheduled for this Friday morning. The exceptional rebound in Gold/Silver stocks today is the first significant clue that something may be different now with respect to daily stock market activity. There are a dozen different potential negative catalysts that could trigger a full-fledged bear market in U.S. stocks. North Korea is in the news again now with threats of war against its southern neighbor. The point of no return is probably close at hand with Iran and its attempt to develop a nuclear bomb. Will Israel let this happen? The unemployment rate is greater than 25% in both Spain and Greece, and in Italy it is near 12%. Could there be some sort of military coup in Spain? Record highs in the U.S. stock market represent a double-edged sword to Dr. Bernanke and his colleagues on the Reserve Board. On the one hand, rising stock prices create a “wealth effect” that provides support for the economy. However, on the other hand, more than a few Fed governors must be thinking there’s a potential “bubble” in the making here and that maybe inflationary pressures will soon show their ugly head. My guess is that these hawks at the Fed will become more vocal in the days and weeks ahead with strong talk of an “exit strategy” for the current accommodative QE policy. While these threats will be empty (QE Infinity), this sort of saber rattling with almost certainly have a negative impact on stock prices.

Gold ETF (GLD) Daily Bar Chart with Computer-generated Buy & Sell Signals

Silver ETF (SLV) Daily Bar Chart with Computer-generated Buy & Sell Signals

S&P 500 Index Daily Bar Chart with Computer-generated Buy & Sell Signals