U.S. Stock Market - Climbing a Wall of Worry

Most major U.S. stock market averages advanced into positive territory this afternoon following relatively weak morning dealings, as investors shrugged off concerns about the potential negative ramifications of sequester spending cuts. News from China that heavy new taxes would be imposed on profits earned from runaway housing prices was also a negative for U.S. stock investors early today. Despite all the gloom this morning, the Dow Jones Transportation Average managed to post an all-time record closing high today (6,045 +1.00%) and the Dow Jones Industrial Average is now only 37 points from also posting its own all-time record closing high.

Here are today’s closing marks, with changes from last Friday’s close:

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                     14,127.82        +38.16             +0.27%           

S&P 500 Index                                                1,525.20        +  7.00             +0.46%

NASDAQ Composite Index                             3,182.03        +12.29             +0.39%

Russell 2000 Index                                            916.68        +  1.95             +0.21%                       

The record closing high in the DJIA is 14,164.53 as set in October 2007. And the record intra-day high for the DJIA is 14,198.10. It seems now that both these records will be broken sometime over the next two trading days. However, I don’t believe that the all-time record high from October 2007 in the S&P 500 Index at 1,576.10 will be broken before the next significant correction begins. The S&P 500 Index has to advance 3.33% from today’s closing level in order to post a new record high.

For your review, the monthly bar chart for the S&P 500 Index is attached below, with all my computer-based buy & sell signals reflected.

Bottom Line: Bullish stock market investors continue to draw strength from accommodative monetary policies from the Federal Reserve and relatively friendly comments recently from both Fed Chairman Ben Bernanke and Fed Vice Chairman Janet Yellen. “Don’t fight the Fed” is the rallying call, and traders can expect most major stock market averages to forge ahead again tomorrow and maybe early Wednesday as well. The Dow Jones Industrial Average will probably advance to at least 14,200 before a meaningful correction begins. As a technical analyst, I would like to see a “blow off top” above Dow-14,200, then a significant intra-day downside reversal to trap the bulls before declaring the end of this extraordinary advance. I continue to believe that the remaining upside potential for this rally is not worth the potential downside risks.

S&P 500 Monthly Bar Chart with Computer-based Buy & Sell Signals

U.S. Stock Market - March 1st Week In Review plus Silver Comments

The weekly changes for most major U.S. stock market averages last week suggest quiet dealings without much action. However, intra-day volatility expanded to the highest of the year so far. On Monday, the Dow Jones Industrial Average posted a new 5-year recovery high at 14,081 in early morning trade, then promptly fell 298 points to end the day at 13,784. Italian elections dominated the news, but investors were also worried about the potential ramifications of so-called “sequester” spending cuts. Concerns proved short-lived, however, as Fed Chairman Ben Bernanke reassured Wall Street on Tuesday and Wednesday that the Federal Reserve would continue its easy monetary stance forever, or at least until the U.S. unemployment rate fell to 6.50% from the current 7.8% level. U.S. economic news was mostly positive, with manufacturing surveys, home sales, and jobless claims data stronger than expected. There were some negative reports, but none proved to unsettle the market for very long. The DJIA posted an intra-day high at 14,149 on Thursday afternoon before minor profit-taking took hold.

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                                               Friday’s Change               Weekly Change

Dow Jones Industrial Average     14,089.66      + 35.17         +0.25%          +89.09        +0.64%

S&P 500 Index                               1,518.20      +   3.52         +0.23%          +  2.60        +0.17%

NASDAQ Composite Index            3,169.74      +   9.55         +0.30%          +  4.98        +0.16%

Russell 2000 Index                            914.73      +   3.62         +0.40             -   1.40        -0.15%

Four weeks ago, in this column, I began to warn of a major stock market top. Here are the closing prices of the major stock market averages on Friday, February 1^st when I first raised the yellow flag:

S&P 500 Index                                        1,513.17       

Dow Jones Industrial Average              14,009.79

NASDAQ Composite Index                     3,179.10

Russell 2000 Index                                     911.20

Incredibly, the changes are almost insignificant since then. The DJIA, SPX, and Russell 2000 are all up slightly, and the NASDAQ Composite is down slightly. The $64,000 question now is where do we go from here? The market WAS overbought on most technical indicators on February 1^st, but maybe the sideways action of the last month has worked off this overbought status, and maybe a reasonable platform (base) is now established for another up-thrust to new highs?

Sell signals were triggered in most major stock market averages tracked in my computer trading system at the close of trading on February 20^th. The DJIA has since traded higher than its intra-day high of that day, but all the other major averages are still below their intra-day highs from that day. I guess the question needs to be asked: “Is my computer system any good?” There are three different time ranges analyzed by my computer system: (1) Daily Bar Charts, (2) Weekly Bar Charts, (3) Monthly Bar Charts. The Daily Bar Chart signals are the least reliable, but they are still pretty darn good. My sell signals from February 20^th were Daily Chart signals. Weekly Chart and Monthly Chart sell signals have yet to be triggered in any major U.S. stock market average.

For your review, I have attached the daily bar chart for the S&P 500 Index. All the buy and sell signals from my computer-based trading system are reflected here, including the sell signal from February 20^th. In theory, this sell signal will abort if the intra-day high on February 20^th at 1,530.94 is violated on the upside. This may very well happen this coming Monday.

I want to take a quick moment to point out a daily chart buy signal that was triggered in the Silver ETF (symbol SLV) at Friday’s close, March 1^st. This chart is also included below for your review. I believe that Silver is about to begin an extraordinary upside advance.

According to statistics from the U.S. Mint (www.usmint.gov), silver coins totaling 3,368,500 ounces of silver were sold in February 2013, the highest total for any February in history and more than double the monthly sales recorded in February 2012 at 1,490,000 ounces. Year-to-date 2013 silver sales by the U.S. Mint through February 28th totaled 10,866,500 ounces as compared to 7,597,000 ounces sold in the same two months last year. As incredible as it sounds, sales of American Silver Eagle coins have been so robust this year that the U.S. Mint had to temporarily suspend sales for about a week beginning January 23, 2013 because it had sold out of its entire inventory at that time.

American Silver Eagle Coin Sales - Temporarily Suspended by U.S. Mint

Most of the silver mining stocks look attractive to me. In the interest of full disclosure, several of the accounts that I oversee include positions in Endeavour Silver (EXK) and First Majestic Silver (AG).

Bottom Line: While I remain negative on the U.S. Stock Market, I think new 5-year recovery highs will be posted in both the S&P 500 Index and the Dow Jones Industrial Average early this coming week. Will the DJIA post a record closing high above 14,164.53? Since we’re only 75 points away right now, it’s not a stretch to think this will happen. Bearish pundits like me probably thought they would get more traction (downside action) from Washington’s failure to compromise over the sequester spending cuts which automatically began on March 1^st. Maybe we have to post a new record high in the Dow Jones Industrial Average before a significant correction can begin? My overall bearish view hasn’t changed. Potential upside action from here, while likely, isn’t worth the risk. While not ready to initiate major short positions just yet, a sideline stance is completely justified. And for those with any kind of silver bug, my computer system flashed a buy signal in this beaten-down commodity at this past Friday’s close. The silver mining stocks have been pummeled this year so far. The Silver Miners ETF (symbol SIL) is down 22.7% since its intra-day high on January 2^nd. This compares to a loss of 9.4% in the actual Silver ETF (symbol SLV) over the same time period. Investments in this market are clearly NOT for anyone with a weak stomach.

S&P 500 Index with Computer-based Buy & Sell Signals

Silver ETF (symbol SLV) Daily Bar Chart with Computer-based Buy & Sell Signals