Dow Hits All-time High. S&P Should Challenge Its High This Week.

March 5, 2013

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This morning the Dow is breaking out to a new all-time high. The economic releases during the last week have been bullish and Asset Managers have the information they need to buy stocks.

This morning, ISM services rose to 56. That was much better than expected and it comes on the heels of other good economic news. GDP nudged into positive territory last week, durable goods orders were better than expected, ISM manufacturing exceeded estimates, Chicago PMI rose to an 11-month high, housing starts were strong and initial claims dropped 22,000. The expectations for employment data this week are high and I believe the numbers will support this rally.

China’s market rebounded and stocks in Italy traded higher overnight. A positive tone was set and the ISM services number sparked additional buying. Once we were within striking distance of the all-time Dow high, momentum took over.

Stable economic conditions are all we need. The Fed will remain accommodative for a long time and they plan to carry a huge balance sheet for years. Stocks are attractive at a forward P/E of 14.

European credit concerns are low and the market doesn’t seem too concerned with the sequester.

Last week’s market decline flushed out bullish speculators. Investor sentiment declined and that is bullish. The 300 point drop only lasted one day and that demonstrated a strong bid.

I have been buying calls the last few days, but my positions are relatively small (25%). I have also been day trading. I have caught every major move and I caught most of the early rally this morning. The market still feels like it has gas in the tank. I am holding my long stock positions into the close, but I am not holding overnight.

I am not adding to my call positions. My entry price is excellent and I don’t want to overextend myself.

Good news is priced in and the S&P 500 could make a new all-time high this week. However, I don’t believe we will see a runaway rally. Jobs will be good, but not great. Stocks will consolidate gains for a couple of weeks and we will gradually grind higher into April.

We don’t want the market to get ahead of itself. That would set up a sharp decline like we saw a week ago. A nice steady move is what we want.

Hopefully you have been buying calls the last few days. Ride your profits as long as the momentum lasts. When the stock stalls, take profits and look for a new opportunity.

The market will finish on its high today, but most of the gains are in. The ADP report tomorrow should be good and we still have another 1% upside this week.
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