Following 4 days of heavy action, the market traded in a tight range this morning before breaking out to the upside again. Economic news has been better than expected all week and today’s news on jobless claims and GDP were good enough to push the Dow to fresh 52-week highs but the indexes are struggling with resistance.
We mentioned this morning there seems to be a 50/50 bet on where the market is heading over the near-term. We can make the case for both sides as to why the market could go higher or lower but maybe the simplest answer is that it does both. We mentioned in January the bulls weren’t going to come this far not to ring the bell on fresh 52-week peaks and that has happened as all of our upside targets and fluff targets from December have been hit on the way up. What we are unsure of is if the bulls will clear 5-year peaks before there is a pullback.
There are a number of headlines the market must battle on Friday and next week with the sequester cuts and nonfarm payrolls coming. The bullish case is that the zombies will reach a deal by Friday night’s deadline and next week economic news continues to come in rosy. This could help the S&P 500 and Dow reach their 2007 peaks.
If there is no deal and the sequester cuts go through, we would think Monday has the potential to be very negative although Wall Street has been discounting the threat. The first trading day of March has also been bearish in recent years as the Dow has been down 4-out-of-the-last-5 years. In 2009, the Dow fell over 4% on the first day of March. We must also point out that the Dow was up 9 of 11 years before the current streak.
We are excited to see how the story will unfold over the next few weeks but the recent action is suggesting a breakout or breakdown is forthcoming.
As we head to press the Dow is up 61 points to 14,137 while the S&P 500 is higher by 8 points to 1,524. The Nasdaq is advancing 18 points to 3,180.
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