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Stockhaven’s market take 12/18/12

The S&P500 closed at its highest level since before the election in a broad based market rally today. Santa certainly seems to have showed up and a test of the year-to-date highs at 1,470 should not be ruled in the coming days. Things looked bullish across the board today:

  • More of the same — Banks continued to impress with XLF hitting fresh 20 month highs
  • Tech joins the party — QQQ moved solidly above the $66 level which had capped the tech ETF the last two attempts
  • Dow Transports firms up — The Dow Jones Transportation index closed at its highest level since April

Financial stocks continued their recent tear today with BAC, MS, GS, & C all hitting fresh 52 week highs. This is awesome action for the bulls as there is now broad participation in the financial rally. A week or two ago, BAC got things started by being the first big bank to make new 52 week highs. The last two days have seen the other big players get in on the fun which is a great sign that the markets will likely continue to rally. A good bullish scenario would be if XLF finds support between $16.20-$16.40 on any pullbacks between now and year end.

Boding even better for markets is that the NASDAQ resumed its leadership role as well today. CRM hit a new all time high while AMZN got awfully close to one itself. In addition, AAPL followed up on yesterday’s rally with another near 3% higher to provide some good momentum to the overall tech trade today. This is good because yesterday I said I wanted to see follow thru today and we got a gap up, hold, and further extension higher which is a really bullish sign. Much like the banks, we just need this move not to become exhausted and for pullbacks to be small. For AAPL, that means holding $525 from here on out.

Most importantly today to me though was the action in the Dow Transports. This index is a key component of the Dow Theory model and it has been lagging the overall markets in general over the last 6 months. Today though the index burst higher, finishing at its highest level since last Spring. This is just another ingredient in what has been a lot of very bullish developments the last couple of days (along with the VIX moving back below 16). Worth nothing though is that this index is still below its 2012 highs and will need to break them in order to avoid being a ‘red flag’ going into 2013.

Bottom line, the end of the day yesterday was bullish and that led to a bullish open. That’s exactly what you should want to see if you’re a bull. If you see a bullish close and expect a bullish open based on it, and then you get just that, then you know the bulls have the momentum on their side. Also, there was no question today about the rally, we didn’t ever get a move from up 100 to say only up 40. No, this rally was strong from the moment the market opened, to the moment it closed. I’d expect a lot less volatility tomorrow while the market takes a potential breather and digests some of this move from the last two days.

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