All-Time Highs in Sight

This is it.

Put up or shut up time for the Dow and S&P 500.

Both are positioned constructively to power to all-time highs over the next week. And I think they will. With sentiment mixed, it’s hard to believe that there will be any mass celebration of new highs, especially with the index problems I discussed here. In fact, I think there is very little chance that the three other major indices will confirm the Dow and S&P 500 at new highs. This is all part of the stock market transitioning to the final stage of the bull market which could last months, quarters or even a year or two.

Leadership has changed as I discussed on Yahoo Finance, yet few are embracing it. Energy, consumer staples, utilities and REITs are now heading the charge. Previous leaders have gone from buying the dip to selling the rally, which is forcing me to opportunistically rebalance portfolios.

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Major Indices Not Singing a Good Tune

2014 may be young, but so far, it’s exhibiting a very different character than 2013 with the rate of ascent completely flat lining and the high flying leaders hit very hard. In other words, the year has been digesting as I wrote about in the 2014 Fearless Forecast. Don’t get me wrong, just because I forecast this type of action doesn’t mean it has been an easy year to make money. It hasn’t. And I don’t think that changes just yet.

I am going to discuss the five major U.S. indices and see what we can glean from the action in 2014. Remember, the healthiest markets have all five indices in sync, meaning they should all make highs at the same time.

The Dow Jones Industrials are first and you can see highs in March and April with essentially equal lows during the same months. After today, the Dow is within striking distance of all time highs, a positive sign.

The S&P saw a higher high in April than March, but a lower low as well, making it stronger and weaker than the Dow.

The S&P 400 Mid Cap Index is below and while it shows similarities to the S&P 500, it is now exhibiting a series of lower lows as seen twice in March and once in April. As such, it is also farther away from all time highs than the other two indices.

The Russell 2000 is next and here you can see a very different pattern. From the last significant low in 2012, this index has led the market higher almost the entire time through early March 2014. Since that time, we see a series of lower highs and much lower lows. Not only is the Russell no longer the leading index, but it’s action is anything but positive and certainly warning of something on the horizon. For full disclosure, some of our programs took a position here at the lows last week since it was overly stretched to the downside and the odds a short-term snapback.

The technology laden NASDAQ 100 is the last major index to show and looks very similar to the Russell 2000 except it has already retraced the entire February to early March rally. Neither index is anywhere near all time highs and both need to be watched closely.

The S&P 500 is next and the chart looks very similar, to the Dow above. If I were doing a full Canaries in the Coal Mine piece, the above comments would be collectively labeled a dead canary and certainly disconcerting for the long-term health of the bull market. However, the canary can certainly be revived if all major indices get back in gear to the upside later this quarter or over the summer.

In the short-term, contrary to what may be reported, it will not be a positive sign to see yet another high in the Dow and/or S&P 500 without the other major indices confirming that celebration. Until proven otherwise, the higher beta (read weaker) indices are now best viewed as sales into rallies than anything else.

Bernanke’s Worry Lines & CNBC’s Closing Bell

I will on CNBC’s Closing Bell today, Friday, at 4:00pm discussing the lack of any taper from the Fed, what they see that the masses don’t and where the markets are ahead.

Earlier this week in Street$marts (click on link to see) and on my blog, www.investfortomorrowblog.com I spelled out the three scenarios that could result from the Fed meeting. While I did not believe any taper was warranted, the market was expecting a token $10-$15 billion. When Bernanke & Company did nothing, risk assets soared, almost as if the heroine addict was given a reprieve from going to rehab.

In my view, the Fed clearly sees something that the masses do not and I have long argued that the markets and economy cannot stand on their own two feet without support. With Janet Yellen (thankfully) seemingly a shoe in to succeed Bernanke, it will be interesting to see if the Fed even tapers at all before she takes office in January.

The Fed’s lack of stimulus reduction does little to change my intermediate-term outlook. It does not make me any more bullish than I already am. I continue to believe that after the next pullback which I expect over the coming 4-8 weeks, stocks should rocket to fresh all time highs well north of 16,000 during the first quarter of 2014.

Regarding bonds as I have written about before, I was waiting for the taper to signal an all clear to buy bonds because negative sentiment had risen to record levels. Anyone even thinking about selling would have done so. It would have been the classic case of the selling the rumor and buying the news. While I am still positive on bonds over the intermediate-term, my conviction is not as high as it would have been had the Fed cut back its purchases.

Bonds are in a bottoming process that should lead to a significant rally sooner than later.

The dollar finally breached its June low which I have been patiently waiting for. I remain (as I have since March 2008) very positive, long-term on the greenback. While it may not be rosy in the U.S., it’s still the best house in a bad neighborhood. I fully expect the dollar to bottom by Thanksgiving and embark on the next leg of a secular (long-term) bull market.

At the same time, that should mean a tailwind for energy prices this fall followed by a significant decline over winter.

Finally, today is the Dow Jones rebalance of Alcoa, Bank of America and Hewlitt being removed and Nike, Goldman and Visa being added. It doesn’t involve a lot of money, but I continue to find it “curious”.

Have a great weekend!

In CT, it’s fall country fair time, apple picking, softball and tee ball for my kids and a celebratory dinner for my closest friend on Saturday. With rain in the forecast for Sunday, I hope to get some TV time with the NFL and season ending golf tournament from East Lake in Atlanta.

Bull Market Run to Continue

Stocks have a done a good job over the past few weeks of shrugging off the events in Syria, the uncertainty at the Fed and the less than stellar economic news. It doesn’t “feel” like the two month consolidation is over and Dow 16,000 is right around the corner, but we will let the market tell us. I do continue to believe that more all time highs are ahead in the fourth quarter and into 2014.

Here is my most recent segment on Fox Business where I discuss a forecast and my favorite sectors.

http://video.foxbusiness.com/v/2630224224001/will-the-bull-market-continue-to-run/

While stocks are bouncing back nicely from the August lows, the bond market simply cannot get off the mat. Given the underwhelming economic news which should have led to a rally, the bond market is fixated on the Fed meeting next week. With the extreme level of negative sentiment, my first reaction to any announcement of tapering by the Fed will be to buy bonds. More on this later…

Oh My! 3 Down Days in a Row!!

Should we break out the crash helmets? The market just went down three straight days! Yes, it was and is stretched, but there isn’t enough internal damage to warrant more than a routine, healthy and normal 3-8% pullback. A much larger correction is coming; it’s just not right now. If and when the major market indices close below the lows from August 7, we should see a deeper bull market pullback.

Here were my comments from the interview I did on CNBC’s Closing Bell.

http://video.cnbc.com/gallery/?video=3000188352&play=1

Short-Term Crossroad

Interesting crossroad for the stock market. Price action says more rally coming shortly while sentiment and internals argue for a 4-8% pullback into August. I guess both could occur in theory.

With the Dow, S&P 500 and Russell 2000 hitting fresh all time highs, it will be telling to see if any more cracks appear in the market’s foundation. We’ll take a look at our regular column of Canaries in the Coal Mine shortly.

Yesterday, Ben Bernanke’s much anticipated and likely final testimony to the House was a dud so all that is left is earnings…