Stocks End Week At 5-Year High: How Much Juice Left?
Two key stock market indexes reached their highest levels since late 2007 after a four-week winning streak thanks to robust corporate earnings reports that offset more weakness in tech giantApple ( AAPL ).
SPDR S&P 500 ( SPY ) added 1.29% to 150.25 after rising for six days straight and four weeks in a row. It ended the week just 5% shy of its all-time high of 157.52 from October 2007.
SPDR Dow Jones Industrial Average ( DIA ) climbed 1.86% to 138.62 -- just a hair below its October 2007 historic peak.
PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, ended the week nearly flat and 5% below its 52-week high.
All three major indexes trade above their 50-day moving averages and 200-day moving averages , indicating they're in a strong uptrend. They also sport high B and B+ IBD Accumulation-Distribution Ratings , which means institutional buying outweighs selling by a wide swath.
"These types of moves can get very overbought, but we think it's best to just hold your nose, enjoy the heights, and wait for a series of negative divergences on the momentum charts," Mark Arbeter, chief technical strategist at S&P Capital IQ, wrote in a "Global Equity Research" report released Friday. "Many times, during strong advances, the peak in daily momentum is followed by a peak in prices weeks later. In addition, it seems that many are sitting on their hands waiting for a pullback, especially with the S&P 500 challenging the big round number of 1,500."
He believes the S&P 500 will reach 1525 to 1575 -- or $152 to $157 for SPY -- before the next pullback.
The small-capiShares Russell 2000 Index ( IWM ) andSPDR S&P MidCap 400 (MDY) have already rallied to new highs, confirming the market's upside momentum.
"When the higher beta (more volatile) stocks and indices are leading to the upside, the more boring and lower beta indices tend to follow many times," Arbeter wrote.
Furthermore the cyclical, or economically sensitive, sectors have been showing more strength against the defensive sectors, which is typically seen in strong bull markets.
Overall, investor sentiment indicators suggest the market is due for a rest, according to Yin Lin, an analyst at Atlanta, Ga.-based Market Edge, a quantitative investing research firm.
"The charts of the major indexes look a little parabolic. While we saw buying on the dips in the prior sessions, we saw profit-taking after the S&P 500 reached above 1500," Lin wrote. "With stocks in overbought territory on both a short- and intermediate-term basis and with sentiment reaching a complacency area (Investors Intelligence % bullish reading, which reached 53.2, is at the highest level since mid-September), the market is set up for some consolidation/pullbacks."
Credit Suisse favors buying small caps, which are being driven by merger-and-acquisition deals, investor sentiment, attractive valuations and retail money flows.
"Despite the strong move, the Russell 2000 index's forward price-to-earnings ratio is just 15.2 times, in line with its long-term average of 15.3 times and below its 2012 peak of 15.7 times and its 2010/2011 peaks of 17 times," Credit Suisse stated in a report Friday. U.S. real gross domestic product growth of 2% is expected this year, an economic growth rate that usually coincides with a 23% advance for the Russell 2000. Credit Suisse recommends overweighting tech, energy, health care and industrials, while underweighting consumer discretionary and staples, financials and utilities.
IShares MSCI EAFE Index (EFA), tracking developed foreign markets, lags the U.S. considerably. It's rallied an epic eight straight weeks, rising 1.48% to 59.01. But it trades 8% below its 2011 peak and a far cry from its 2007 apex.
IShares MSCI Emerging Markets Index (EEM) ended the week down 1.33% at 44.18. It still trades deeply below its 2011 and 2007 vertexes.
EFA, with an IBD Relative Strength Rating of 63 and B Acc-Dis Rating, is showing the most potential for further upside compared with the U.S. and emerging market indexes. Its RS Rating shows it's rising higher and faster than 63% of the market. By contrast, SPY and EEM sport RS Ratings in the mid-50s, indicating they're right in the middle of the market.
Investors hammered gold and silver prices in their preference for higher-risk assets.
Gold futures prices slipped 1.04% for the week to $1,671 an ounce.SPDR Gold Shares (GLD) fell 0.83% for the week, after downtrending for four weeks straight. It dropped below its 200-day average Friday, confirming a strong downtrend.
IShares Silver Trust (SLV) lost 1.95% for the week. It ended below its 50-day line but above its 200-day, which indicates a very weak uptrend.
Jeff Sica, founder of Sica Wealth Management in Morristown, N.J., believes the sell-off in the yellow metal will be "short lived" because of strong buying support at $1,650 an ounce. He contends gold is selling off because investors expect quantitative easing, the Federal Reserve's economic stimulus program, will end sooner than expected. But higher prices are in store because of strong demand from global central banks.
Follow Trang Ho on Twitter @TrangHoETFs .