The bulls have triggered our fluff targets for the Nasdaq and the Dow but the S&P 500 and Russell 2000 are lagging as we head into the second half of trading. We mentioned calling a market top is never easy but we can honestly say we nailed it.
In early December, we talked about a 4% rally to new highs if the zombies could come together with some real solutions. Our targets were Dow 13,777; S&P (500) 1,492; Nasdaq 3,150; Russell (2000) 885. All 4 of these targets have been triggered and while we provided some additional fluff targets, we are starting to get cautious as we head into the last week of January.
We do expect the rally to continue into next week and we are expecting the first day of February to be bullish so we have another 7 trading days to move higher if everything plays out like we expect it to.
The other point we want to make is that this year’s sentiment is playing out just like like year. The talking heads and pros have been calling for a pullback since Christmas and while we did get a dip, we said to trust the seasonal patterns and that the Santa rally wouldn’t start until after Christmas. We talked about the Fist Five Days of January and how the small-caps would lead the next leg higher.
We also said to watch the Financial and Tech stocks to see if they pulled their weight and they have. We said the S&P Volatility Index ($VIX, 12.43, flat) would spike above 20 briefly before falling into the low teens.
The point we want to make is it’s easy to be right when the market does selloff and the ones who have called for a pullback will say they were right, but they were wrong and they missed the 5% move. We mentioned February is normally the “weakest” month in the historical bull runs from December thru April but last year, February was bullish and we didn’t get a pullback until March.
This could be the case again this year and Apple (AAPL, $509.00, up $4.23) could play a key role on how this theme would play out. Then again, we could have a pullback if Apple misses estimates and lowers guidance.
We mentioned in our Weekly Wrap that Apple needed to do a stock-split and instead of an OMG product, this would wow Wall Street. They have split their stock in the past and we mentioned there would be a new love found for the stock as investors could get in at much lower prices.
Of course, stock-splits don’t mean anything if you are already in as you would own more shares but at a split-adjusted price. However, stock-splits are usually bullish as shares run higher and we talk about this in our trading manual, How to Trade Options on Momentum Stocks, which will be shipping early next week.
Here is how the indexes look as we head to press: The Dow is up double-nickels to 13,768 while the Nasdaq is up 10 points to 3,153. The S&P 500 is down a point to 1,491 while the Russell 200 is off 2 points to 897.
We hope Apple does well because we are still playing call options but with our fluff targets being triggered, we do want to take some profits off the table. We are taking HALF profits on a few trades to lock-in gains ahead of today’s big announcement. We always like to stick to our trading plan so let’s go ring the register on a few trades. We will leave our longer-term trades at full positions.