About a previous post, I stated that the market was targeting 1930 on the S&P. Well, last week, as the ECB lower interest rates in Europe, the market rallied past that target. As of tonight, Sunday night, the futures sit at around 1947. Looking at the technicals, the markets targets 1950, which it has already hit, and then the 1970 area.
The market looks bullish, and almost ridiculously bullish. This weekend, I was reviewing what I thought were the important forces at work:
1) World worries seem to have faded. Concerns about Russia invading Ukraine has fallen far off the front page. China has done some targeted easing, allaying – at least for the moment – the fears that China’s bubble will burst. Japan’s inflation is increasing, making it seem that Abe’s restructuring plan is working.
2) In the US, business is rebounding from an awful winter. Many expect Q2 GDP to be 2-4% GDP growth. That, combined with a down Q1, gives many hope that the first half of 2014 will be an average year-over-year growth of about 2%. This makes it possible for 2014 to be a 3-4% GDP growth year. The bulls therefore, who have called for a strong end to the year, remain steadfast in their predictions, and so do economists and Wall Street analysts.
3) Technically, Q1’s declining sectors – momentum stocks, biotech, small caps and retail – have stabilized and found, at least, a short term bottom. Many of these stocks have even found renewed upside energy. Also, the financials, which have been holding back, finally joined in the rally next week.
4) Lastly, the VIX, the so-called fear indicator, is at it’s lowest in years, confirming the currently stability and lack of volatility in markets.
Of course, there are many that are saying that with no worries, we should worry. But frankly, I can’t find anything, or anything on the horizon to point at. And so, contrary to the popular opinion at the beginning of the year that we would have a weak summer, it now looks like we will have the steady grind higher for the summer, the so-called “melt-up”. As the traders say, don’t fight the trend.
For now, I am expecting the S&P to hit the 1970 range, and for market breadth to expand. Of course, we may not get there in a straight line, but I expect any pullback to be bought quickly.