The stock market rang in the New Year with gusto as many
countries and sectors soared past their 2007 pre-financial crisis
highs in January. Some investing strategists say their indicators
signal the party is due for a break in February.
SPDR S&P 500 (
) climbed 5.4% in January, as of Thursday afternoon. The
underlying S&P 500 index eclipsed the 1,500 level for the
first time in five years, ending the month just 5 percentage
points below its 2007 historic peak.
PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
rose 2.9%. Although it's trading below its 52-week high, it
already soared past its 2007 apex in April 2011.
SPDR Dow Jones Industrial Average (
) surged 6.2%.
They currently have high
IBD Accumulation/Distribution Ratings
of B or B+ on an A-to-E scale, indicating institutional buying
heavily outweighs selling.
"On the positive side of the ledger, housing and labor markets
are far better off now than one year ago, fourth-quarter
corporate earnings have also been mostly better than expected,
Congress reached a deal to stave off massive tax increases and
did manage to kick the debt ceiling/spending cut debate can down
the road," the Stock Trader's Almanac stated in its "February
2013 Trading & Investing Strategy." "But on the negative
side, housing and labor markets are still far from ideal, growth
forecasts remain tepid, oil is heading back to $100 a barrel and
Congress has only kicked the can, leaving major issues and
"Presently, the market appears focused only on the positives,
while ignoring some of the negatives that could have significant
and lasting effects on the U.S. economy," it added.
SPY and DIA are trading high above their
50- and 200-day moving averages
, indicating a strong uptrend. But a handful of technical
indicators signal that the stock market is overbought and due for
a pause or consolidation before climbing higher, according to the
Almanac. Since 1950, the stock market on average has been flat in
February -- the weakest month among the best six months of the
year (November to April) for the stock market.
"Barring any unforeseen events, we now expect the market to
continue higher over the next two to four months and perhaps to
marginally new all-time highs for the DJIA and S&P 500 and
Nasdaq," the Almanac stated. "Then debt ceiling, spending cut and
sequester politicking are likely to exacerbate bearish seasonal
and cyclical forces, conspiring to knock this bull market down
off its high horse. If a debacle is avoided in Washington and
global economics remain resilient, then we may skirt Ursa Major
for another year."
Health care, consumer discretionary, transports and consumer
staples, all trading at new historic highs, lead the market's
gains in the past month. Energy, basic materials, industrials,
financials and commodities have yet to recover the prior
who pulled money out of stock funds in the past four years in
favor of bonds are starting to dip back into stocks, data from
the Investment Company Institute show.
"If investors continue this way, it could push billions of
dollars of new assets into funds and stocks and help push equity
markets higher as that money is put to use by fund managers," Jim
Corridore, an equity analyst at S&P Capital IQ wrote in a
client note. He recommends growth funds over value because growth
tends to outperform value in the early stages of an economic
Small And Midcaps Tops
While the S&P 500 trades below its 2007 historic peak, the
small-cap iShares Russell 2000ETF (
) and SPDR S&P MidCap 400ETF (
) have soared to new all-time peaks. IWM rallied 6% and MDY 7% in
In December, options traders were overwhelmingly bearish by
four to one -- the most bearish they've been on small caps in a
year, according to Ryan Detrick, senior technical strategist at
Schaeffer's Investment Research in Cincinnati. As the index
climbed, the bears in order to cover their positions had to buy
back the stocks thereby boosting prices.
"Only 46% of small-cap stocks have a 'buy' rating on them,
according to Zacks. This is well below other 'buy' ratings for
larger stocks, hammering home yet again just how low the
expectations are for small caps," Detrick wrote in an email.
"This leaves plenty of room for some well-deserved upgrades."
In soaring to new highs the IWM and MDY have no overheard
supply or price resistance.
Mark Arbeter, chief technical analyst at S&P Capital IQ,
estimates MDY could rise nearly 20% over the next 12 to 18 months
based on the size of the cup-with-handle chart pattern it formed
at the end of 2012.
Over the past 10 years, IWM has returned an average annual
10.7% vs. 11.4% for MDY and 8.0% for SPY.
MDY sports an
IBD Relative Strength Rating
of 67, higher than those of IWM and SPY. That means its price
performance has outdone two-thirds of the market the past 12
months. MDY's Acc/Dis Rating of B+ means institutions are heavily
buying more shares than selling.
IShares MSCI EAFE Index ETF (EFA), tracking developed foreign
markets, gained 4% in January.
IShares MSCI Emerging Markets Index ETF (EEM) shed 0.4%.
The two most popular foreign index funds also trade above
their 50- and
200-day moving averages
, confirming a strong uptrend. But they have a ways to go before
reaching their 2007 peaks, presenting a potential "catch up"
trade in which the laggards trade places with the leaders owing
to bargain hunting.
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