U.S. Stock Market - DJIA Alone At The Top Today

The Dow Jones Industrial Average advanced to another new closing high today (just barely). That makes 8 straight winning days in a row for this venerable market barometer. However, every other major index ended lower today. It was a relatively quiet news session, which had a dampening effect on composite volume. Declining issues outpaced advancing issues by about 3 : 2. Gold/silver mining shares were big winners today as both gold and silver rallied nicely. Most commodity related stocks were also generally higher, as were semiconductor shares. And T-bond prices rebounded nicely today after 5 straight days of heavy selling.

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

                                                                                    Tuesday’s Changes                

Dow Jones Industrial Average                       14,450.06        + 2.77              +0.02%           

S&P 500 Index                                                 1,552.48        -  3.74              -0.24%

NASDAQ Composite Index                              3,242.32        -37.30              -0.32%

Russell 2000 Index                                              940.26        -  2.25              -0.24%                       

Tech giants Apple and Google were both down today, which contributed to a relatively weak NASDAQ Composite Index. Apple just can’t seem to buy a break. Jefferies lowered earnings estimates for AAPL today, and according to the IDC, Apple may lose market share over the next five years within its now-dominant iPad space. Ironically, on my list of undervalued stocks this week, of which there were only 5 names out of 6,500 listed U.S. stocks, Apple was #4. Almost hard to believe how far the pendulum has swung here, with this Company now trading at just 8.5x forward 12-month earnings, a peg ratio of 0.51, and a 2.47% dividend yield. Apple is down 19% this year so far and now down 39% from its record high set last September at $705.07. Maybe the $400 price support level needs to be tested in Apple before this great company can mount a sustained rally?

For your review, I have attached a copy of the daily bar chart for Wells Fargo (WFC). As you can see from the chart, a daily chart sell signal (RED Dot) was triggered within my computer trading algorithm at today’s close in this key player in the banking sector. My best guess right now is that a weekly chart sell signal will also probably be triggered in this stock before the end of this week. Is this another warning sign for the broader market? I think maybe yes!

Bottom Line: While generally not a big fan of the so-called “Dow Theory” in terms of market forecasting, I do keep an eye on the Dow Jones Transportation Average for possible clues to the next big swing. The DJTA peaked at 6,189 last Wednesday when the DJIA was 14,320. Since then, the Dow Industrials rallied 159 points to this morning’s intra-day high at 14,479, but the Dow Transports was actually down 19 points over this same time period. There hasn’t been a new high in the Dow Average Transportation Average since last Wednesday despite 4 new highs posted on 4 straight trading days for the Dow Jones Industrial Average. I see this as a bearish “non-confirmation” and another in a long list of caution signs now pointing to a meaningful overall  market correction immediately ahead.

Well Fargo (symbol WFC) Daily Bar Chart with Computer-generated Buy & Sell Signals

Dow Jones Industrial Average Daily Bar Chart with Computer-generated Buy & Sell Signals

U.S. Stock Market - S&P 500 Approaches Record High

The Dow Jones Industrial Average advanced to another record high today, and the S&P 500 is now only 8.93 points (or +0.57%) from its record closing high at 1,565.15 as set on October 9, 2007. The S&P 500’s record intra-day high is 1,576.10 as set on October 11, 2007. Today was the 7^th day in a row of “overall” gains in the market (7 up days in a row for the DJIA and the S&P 500 Index). Except for some relatively soft economic news out of China pre-opening, there were very few news items that impacted the U.S. stock market today.

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

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                      14,447.29        +50.22             +0.35%           

S&P 500 Index                                                1,556.22        +  5.04             +0.32%

NASDAQ Composite Index                             3,252.87        +  8.50             +0.26%

Russell 2000 Index                                             942.51        +  0.01             +0.00%                       

The VIX fell to 11.56 today, its lowest level since February 26, 2007. As mentioned in this space previously, a relatively low VIX number doesn’t necessarily mean that a correction is imminent, but it does reflect an elevated level of complacency among investors in general.

As I write this column (at 7:30 PM ET), the main headline on MarketWatch.com is “Time to Sell Your Bonds?” If we look at the TLT, which is the long Treasury Bond ETF (>20-year maturity), then T-bond prices are down about 13% since peaking last July 2012. The yield has risen from 2.45% to 3.25% on the 30-year T-bond over this same period. While I certainly wouldn’t want to own 30-year T-bonds for the next 30 years with a yield of just 3.25%, I suspect that there will be a meaningful “bounce” in T-bond prices very soon, especially if the U.S. stock market begins a correction (as expected). And the Fed is still buying $85 billion/month in Mortgage and Treasury securities, which should provide a floor to bond prices in general, at least over the near term.

With ½ hour remaining in NYSE dealings today (at 3:30 PM ET), most of the major stock market averages were starting to roll over (or that's the way it looked to me). The Dow Transportation Average and the Russell 2000 were actually in negative territory at that time, and market breadth (Advancing Issues minus Declining Issues) was about even. At that moment, I thought perhaps a meaningful turn was being made. However, several buy programs were executed late in the session, and the DJIA jumped 25 points in the last 30 minutes to post a new intra-day high, and the S&P surged to match its best level of the day.

It’s hard to find anyone who doesn’t believe the S&P 500 will advance from here to a new record high. Of course, I would be surprised if you could have found anyone in late December 2012 who thought the S&P 500 would rally to a record high in the first quarter of this year.

Every weekend I run two stock screens to produce a list of potential undervalued stocks and a list of potential overvalued stocks. While I consider my screening criteria to be relatively “tight”, my objective is to produce two reasonable lists where further research might provide compelling buy or short-sale candidates. This past weekend’s results are noteworthy because the “undervalued” screen produced only 5 stocks, while the “overvalued” screen produced 67 stocks. Approximately 6,500 total stocks are screened in this exercise each week, and this weekend’s results produced the lowest number of undervalued stocks and the highest number of overvalued stocks in the history of this screen (which goes back about two years). Maybe this should be expected given the record highs now being posted in most major indices, but my read here is that the U.S. stock market is now at an extreme overbought level and that “valuations” are stretched to the breaking point.

Bottom Line: I have very few pearls of wisdom for today. I thought the U.S. stock market would turn today, but it didn't. “Never sell a dull market” probably applies to this market right now, but I still see too many potential negatives to throw in the towel on my bearish forecast.

S&P 500 Index Daily Bar Chart with Computer-generated Buy & Sell Signals