This Is Big News…
As I’m sure you’re aware, stocks market bulls have been on a rampage recently. In fact, the S&P 500 is up 5% since the start of 2013, while the Dow and Nasdaq are up 6% and 2.7% respectively.
That’s a remarkable performance considering the pervasive fear that enveloped the market just a few short weeks ago.
What happened?
Quite simply, the Fiscal Cliff fiasco everybody was so worried about was resolved quicker than many analysts (including myself) expected. Once investors realized the three-ring circus in Washington would actually arrive at a deal, they sent stocks roaring higher.
But now that markets have gained so much ground, it’s a good idea to see where we’re sitting from a technical perspective.
Let’s take a look at a yearly chart of the S&P 500…
As you can see, this year’s 5% advance still pales in comparison to last year’s January to April run of 12.6%. If we use last year as a template, we may see additional gains of 7% in coming months.
However, now that the S&P 500 has reached 1,500, I wouldn’t be surprised to see a bit of selling. As you may know, round number price levels (like 1,500) are important psychological areas that tend to bring about short-term trend changes.
In other words, don’t be surprised to see a bit of profit taking in coming days.
How low will stocks go?
It’s possible the S&P 500 pulls back to the long-term uptrend (blue line) at the 1,400 area. However, if Q4 2012 earnings numbers keep coming in strong, such a downturn is unlikely.
You see, 75% of the companies in the S&P 500 have reported earnings above analysts’ estimates. What’s more, 66% have reported revenues greater than analysts’ expectations.
Given such bullish numbers, the odds of a dramatic pullback are growing slimmer by the day.
But if you think that’s good news, wait until you see this…
Both the S&P 500 and Dow are on the verge of achieving monumental milestones.
Believe it or not, the S&P 500 has nearly recovered all the losses created by the 2008 financial crisis. Another 70 points of gains and patient investors will witness a 100% retracement of the 2007 high to early 2009 low… remarkable.
The same goes for the Dow. This widely watched index is within a whisker of 14,164, the all-time high set in 2007.
Can the Dow and S&P 500 reach those old highs?
Absolutely.
In fact, they’ll likely hit those highs in the very near future. What’s more, both the S&P 500 and Dow will likely break to new all time highs later this year.
What makes me so bullish?
According to Thompson Reuters, equity funds saw $3.6 billion worth of inflows last week. Add that to the $18.6 billion in fund inflows for the week of January 9th, and you’ll find retail investors are pouring money back into the stock market in 2013.
That’s right, after 22 consecutive months of equity fund outflows, it appears investors are finally convinced stocks are the place to be. Maybe letting cash sit in a money market fund (getting essentially nothing in return) has become too much to bear.
Of course, there’s always the possibility retail investors are buying into a market top, much like they did in 2000 at the height of the tech bubble.
But I don’t think that’s the case this time around…
Retail investors have avoided stocks like the plague for the past two years. There’s simply been too much to worry about.
But now, they’re finally realizing that the global economy is healing. Europe is finding long-term solutions to their debt problems. The Chinese economy is expected to stabilize at 8% growth this year. And believe it or not, the US economy is gaining steam as well.
So stay tuned folks…
This will be a very interesting year for stocks. And it’s highly likely markets will end 2013 much higher than where they started.
Until Next Time,
Justin Bennett
Category: Stocks
