Dow 20,000 Already Forgotten

Last week, the Dow hit my longstanding target of 20,000, first given on CNBC’s Squawk Box in 2010 just after I forecast that the Fed’s balance sheet would hit a staggering $5 trillion. If we see 5 consecutive closes above 20,000, the next upside target will be created. Since Dow 20K, it’s been even more Donald Trump and politics on the financial channels. I think the Q4 GDP report is now totally forgotten.

Market sentiment had become a little frothy heading in to Dow 20K and I thought that finally closing above that meaningless milestone would cause an even stronger rush by the bulls to a potential intermediate-term peak. However, it doesn’t seem to be the case. With President Trump’s pen busier than a one-legged grasshopper at a jumping contest, Dow 20K has taken a backseat. Weekend talk shows totally ignored it. Financial media has largely forgotten about it. This is actually a positive over the intermediate-term.

Before offering some downside targets for a small pullback, let’s wait to see where stocks close on Monday. The bulls could try to defend 19,900 although 19,700 looks more solid. Weakness remains a buying opportunity until proven otherwise.

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Bulls & Bears Even But Opex Tilts Down

Bulls and bears come into the new week on equal footing,  both still fighting it out in the trading range. The bulls have done nothing wrong to indicate anything more than a 3-5% pullback and the bears will have a lot to prove at that point. Since early December, the small cap Russell 2000 has lagged and the bulls are getting to that point where it’s time to step up. Clearly, the unpopular NASDAQ 100 has been the leadership index. As I mentioned on CNBC last week, I do think Dow 20,000 gets hit sooner than, but that would be a short-term selling opportunity rather than a launching pad.

For this holiday shortened, option expiration week, the seasonal trend is for mildly lower prices and that’s how it look like the week is beginning. The “losers” from Q4 or the mean reversion instruments continue to lead the markets. Those are treasury bonds, gold, yen and euro. I am a little surprised that staples, utilities and REITs haven’t stepped up, but maybe they need a little soft patch from stocks. In any case, these are short-term opportunities and not trades for the whole year.

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Dow 20,000 on Hold for Now

On Friday the Dow Jones Industrials failed to touch the vaunted 20,000 level, missing by less than a single point. It’s been interesting to watch the media fall over themselves, cheering, pushing and encouraging the Dow to touch 20,000. Frankly, it’s kind of embarrassing. What’s worse has been the pundits who actually believe Dow 20,000 actually means anything. It’s just a number although I guess eclipsing milestone levels does add to the euphoria. For me, it’s been a target I started forecasting in 2010 before the bull market ended.

Anyway, as the Dow failed to hit 20K and fell back during the afternoon, the underpinnings of the stock market were less than impressive. The number of stocks hitting all-time highs receded. The NYSE Advance/Decline Line was actually negative on Friday, showing fewer stocks participating. The Russell 2000 small cap index saw its second straight down day. Market sentiment based on surveys was frothy. This is not the healthiest short-term landscape for a blast higher right here.

Whether stocks hit 20,000 this week or fail, it looks like the market is a bit tired and needs a rest or pullback for a few weeks.

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Time to Be Careful

Before I dive in, let me be very clear, I remain bullish over most time frames. Nothing has changed. Five straight closes above 18,000 as I spelled out on CNBC last week and many times over the past six months may create a slingshot to 20,000 this year. The bull market is old and wrinkly but not dead. Same old lines from me.

The headline about being “careful” is more about the short-term and because stocks just broke out to all-time highs where risk usually increases. The major indices had been in a trading range for three months and just hit fresh highs over the past few days. Historically, this can lead to a quick surge higher as bears scramble to cover losses and bulls pile in. However, it can sometimes lead to a fast and sharp downside reversal which usually happens sooner than later.

At this point, I am not concerned yet that a double digit correction is here, just a little warning not to be complacent. The window of opportunity for the bears to make a stand is now, meaning over the next week. The longer stocks remain at new highs, the less likely a sharp reversal can take hold.

I will talk about sector leadership rotation tomorrow, but suffice it to say that it’s very encouraging! My position in the long dated treasury is not.

REMINDER: I will be on Fox Business’ Making Money with Charles Payne tonight from 6 pm – 7 pm. Tune in for a fast paced hour we talk markets, economy and a random group of topics.

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Bulls Trying to Step on Bears’ Throats

Earlier this week, I spelled out three possible scenarios for stocks with one very bullish, one mildly bullish and one bearish. I gave most weight to the mildly bullish one and least weight to the bearish one. Right now, stocks are marching more towards the very bullish scenario although the Dow breached the lows I had discussed in the mildly bullish scenario.

Looking at the five major indices, the Dow needs to close above 17,850 to set up a run to new highs and break the backs of the bears. The S&P 500’s number is 2065 while the S&P 400 is hitting fresh all-time highs as I type this. The Russell 2000 is already above its line in the sand and just needs to close well to stomp on the bears. Finally, the Nasdaq 100’s number is 4295, still more than 1% away and playing catch up.

Unless the major indices immediately reverse, and there is the employment report on Friday, the bulls should have enough juice to push higher with most indices scoring all-time highs this month.

Anything to worry about? With the bull market being 71 months old and more than 3 years without a full fledged correction, risk is there. The three key sectors, semis, banks and transports are not leading and don’t look powerfully constructive. Defense remains in charge, not exactly a ringing endorsement.

However, if the Dow sees 5 straight closes above 18,000, that will set up 20,000 as the next target in 2015.

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