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Stockhaven’s Market Take 1/22/13

Another day and another set of fresh 5 year highs for a bevy of key market indexes and sectors, among them:

  • S&P500 closed green for the 5th day in a row to a new 5 year high around 1,490
  • Dow Jones Industrial average closed green for the 8th day out of the last 9, finishing around 13,700 its best level since December 2007
  • Dow Jones Transportation index closed at another all time high for the 5th day in a row, finishing around 5,750
  • XLY closed at another all time high, and is just shy of breaking $50
  • XLF finally cleared resistance at $17.20 and closed at its best level since October 2008
  • XLV closed at an all time high, and XLI closed at a 5 year high

 Stockhavens Market Take 1/22/13

Dow Jones Industrial Average 01/22/13

As you can see the bullish momentum continued today and the S&P500 is very close to testing psychological resistance at 1,500, which shouldn’t come as any surprise.

“With a nice break of 1,475 the most likely move is for a test of resistance at 1,500.”
-Stockhaven’s Market Take 1/21/13 

In the same paragraph that the above sentence was taken from, I voiced the belief that all of these bullish occurrences are actually good short term sell signals, and I maintain that view. I’m not trying to call a top here but I am advocating selling on the way up to what I believe is likely to be a short term top somewhere between here and 1,500ish. My thesis is based on the fact that when all you are seeing is bullish price action, that is when the smartest traders start becoming suspicious of the move, and those that have the doubted the rally for so long start piling in.

Exhibit a.)

“Investors in U.S.-based mutual funds poured $14.82 billion into stock funds in the week ended January 9, a record according to weekly data that extends back to the start of 2007, the Investment Company Institute said on Wednesday.”
-Reuters 1/16/13 

I am not saying that this rally can’t continue, nor am I calling for a big correction. I simply think, at the current level in the S&P500 we are running out of near term bullish catalysts for much of a push beyond 1,500 to materialize. Think about all of the indexes and ETF’s I cited above hitting multi year highs or all time highs, those are all catalysts, yet they have only gotten us to this point.

Two would be catalysts that I see are in the form of the VIX and QQQ. The problem with the VIX though is that it is also at 5 year lows, which likely rules out the possibility of a volatility erosion induced rally. Sure the VIX can fall towards 10 and aid the markets higher in doing so, but after an already 31% decline year-to-date, that is not the most likely scenario in the near term in my opinion.

Then there’s QQQ, the NASDAQ based ETF that is up 168% from its financial crisis low, a much greater rise than SPY (120%) or DIA (110%). In other words, QQQ has been the leading index ETF off of the 2008-2009 lows, yet it is the only one of the 3 that isn’t at 5 year highs. In fact, QQQ remains 5% below what would be 5 year highs.

So yes, should QQQ advance beyond resistance at $67.50 that would certainly be a catalyst to help push the everything higher, but I would have preferred to see this be the first index to new 5 year highs. QQQ likely needs solid post earnings price action from GOOG & AAPL in order to get that move underway, and unless that happens I will maintain my view that you will see the S&P500 at a lower price 30-90 days from now rather than a higher one.

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