S&P 500, Dow close at new highs

But the market is beginning to look overbought as oil prices and interest rates are on the move again. Google, Apple and Facebook boost the Nasdaq.

By Charley Blaine Aug 1, 2013 4:38PM
Arrow Up (© Image Source/Photolibrary)Let's all cheer for the stock market's performance Thursday -- because, as good as the rally was, the market is starting to look toppy.

Yes, the Standard & Poor's 500 Index ($INX) topped 1,700 for the first time ever. The Dow Jones Industrial Average ($INDU) finished at a new high, with its best daily performance in more than three weeks. Facebook (FB)  traded above its $38 IPO price for much of the day, but faded in late trading. Yelp (YELP) jumped 23%.

Fueling the rally were the Federal Reserve's signal on Wednesday, that it's not planning to push interest rates higher any time soon, and decent news Thursday on jobless claims and auto sales. In addition, the Institute for Supply Management's U.S. manufacturing index expanded at the fastest pace in two years in July, and China’s Purchasing Managers’ Index beat expectations.

But a number of technical and fundamental indicators are suggesting a short-term break is coming, including rising interest rates, oil prices and retail gasoline prices. Moreover, Thursday's good vibrations could dissipate if Friday's jobs report disappoints.

If a pullback materializes -- August can sometimes start one -- it's not clear if a slippage will turn into something worse. That probably will depend on two things: the economy and how the Federal Reserve reacts to it. 

The Dow closed up 128 points to 15,628 -- a new closing high. Its high of 15,650.69 was an intraday high.  The S&P 500 was up 21 points to 1,707, near its high for the day (and all-time intraday high) or 1,707.85. It's been flirting with the 1,700 level for nearly two weeks. Wednesday's high was 1,698.43.

The Nasdaq Composite Index ($COMPX) had jumped 49 points to 3,676, after hitting an intraday high of 3,674.13. Thursday's close was the best for the index since Sept. 28, 2000.

Thank Google (GOOG), which topped $900 for the first time since July 24; Apple (AAPL), up $2.78 to $455.31 and up 9% since its July 23 earnings report; and Facebook.

The rally was in fact quite broad: 24 of the 30 Dow stocks were higher, along with about 440 S&P 500 stocks and 86 stocks in the Nasdaq-100 Index ($NDX). The index was up 36 points to 3,126.

The consensus for Friday's job report is an unemployment rate of 7.6% in July, unchanged from June, and possibly 200,000 job gains.

Here are the headwinds that are building up:

Oil prices are rising.
Crude oil
(-CL) in New York was up $2.64 to $107.67, its biggest percentage gain since July 10. Brent crude had gained $1.78 to $109.48. The 1.7% gain was the biggest since May 2.

Interest rates are higher.
The 10-year Treasury yield was at 2.695%, up from 2.593% on Wednesday and 1.6% in May. The Fed has said it plans to keep its key federal funds rate at ultra-low levels, but the bond market controls longer-term rates. When the Fed starts to taper -- or trim -- its monthly bond purchases, it's not clear how the bond market will react. A quick run-up in interest rates could stall a lot of economic activity.

Momentum indexes suggest stocks are nearing overbought levels.
The most important on Thursday was the MACD divergence line for the S&P 500. It dropped below zero on Thursday, typically a sell signal.
 
The headwinds are building, suggesting -- but not guaranteeing -- that a pullback is coming. 

The market rally overall was fueled by industrial, financial and consumer discretionary stocks. Natural gas producer Pioneer Natural Resources (PXD) has been the big winner among S&P 500 stocks, up $20.29 to $175.15. It's as big player in natural gas production in shale regions. Chesapeake Energy (CHK) was the third best performer.

American Express (AXP) and Bank of America (BAC) are the best performers among the 30 Dow stocks. Caterpillar (CAT) and Boeing (BA) were also higher. Exxon Mobil (XOM) was the laggard, after reporting the worst quarterly profits since 2010.

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26Comments
Aug 1, 2013 4:55PM
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Here's an interesting exercise.  Look up the S&P 500 index quote ($INX) on this very website.  Click on the chart and reset it for "max".  From 1950-1980, the growth of the S&P looks completely normal.  After that, it all looks too big and too fake.  What happened in 1985 that caused the first quick run-up, where the index doubled in a matter of 32 months?  Wasn't that around the time the Fed started really screwing around with interest rates to make our GDP numbers and other economic indicators look really good?  Wasn't that also around the same time 401k plans were implemented?  Then, in 1995, things really took off - why?  NAFTA?  Greenspan?

When you look at this index in totality, over the last 63 years, it is very obvious that something is wrong, and that something unnatural is taking place.  And all of you index fund investors, who blindly contribute every month, might want to re-think your strategy.
Aug 1, 2013 5:19PM
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If the economy is soooo great....why are soooo many cities/states talking of bankruptcy?  Wake up America...
Aug 1, 2013 4:57PM
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As the wall street fat cats and mega banks get fed fatter by their dope pusher, ben butski, their favorite tool in the closet. next they will redo gdp to make it go higher and the market will take off again. bubble bubble who got dee bubble ?.
Aug 1, 2013 5:00PM
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There isn't one single report most of America can look out their window and validate the data by. The FACT is, that there was a printing festival today all over the world. Too bad crap-reporters like YOU, Charley Blaine, don't produce articles that point out all the brewing storms and obvious harm all this financial tyranny and bank buffoonery is doing. Instead of anchoring commonsense to the Earth and working cooperatively on genuine sustaining solutions, we let ancient rich people with drug & alcohol warped brains drive us to ruin by buying our political system and stacking the election deck with dicks and psychopaths. YOU, Charley Blaine... will regret your lack of backbone in your lifetime.
Aug 1, 2013 6:12PM
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Screw stocks, I found 2 bricks of 22LR rounds today. I'm rich!!!!
Aug 1, 2013 6:25PM
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When the fed pulls out of the market it will be a rude awakening for everybody and I mean everybody. What ever the fed touches it turns it to crap, there is nothing that government does or has done that isn't left to ruin.
Aug 1, 2013 6:21PM
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Wall Street keeps going up and up.
Aug 1, 2013 6:41PM
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Well said Romblebee and L_V! you're both 100% right. It's going to get ugly! Americans are not hurting enough yet, to pay attention to the most corrupt govt. in our lifetime, but they will, and soon.  And I'm referring to both parties that are now one. Their intent is to collapse our economy, they have a much bigger agenda to fulfill!

Aug 1, 2013 7:55PM
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and Homeownership hits a 18 year low.

Hey America there is your CHANGE!
Aug 1, 2013 8:17PM
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The real truth. Sometimes the stock market goes up, sometimes down. Buy low and sell high, not the other way around. You'd be surprised at the number of people who've been sitting out for a year or more who'll get in now at record highs.
Aug 1, 2013 8:15PM
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The word is the economy picked up 200,000 jobs in July, houses are hot, trucks and cars are selling at a rapid rate. We have low inflation, low interest rates, all done without the help of the republicans, poor gobbers. I forgot to mention the market, a new record high. Yeah I know, the end is coming. LOL
Aug 1, 2013 8:11PM
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The market keeps going up and the 'experts' keep telling us why it's about to go down. If I had listened 4,000 points on the Dow ago, I'd be mighty angry.
Aug 1, 2013 8:32PM
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Their is just to much chatter between the Bulls and the Bears. What's good and what's bad about the economy and the valuation of the stock market indexes. It's mind boggling, all those diverse opinions must mean something is up or possibly down. My think tank says a pull back is coming ......how much....who knows; when, soon.
Aug 2, 2013 4:51AM
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What the hell is Normal in a Fiat based Money System? The FEDS have been playing around with interest rates long before 1985. Do we see jumps in Market on Charts that on the surface, shock us, certainly. However we need to be very carefully how we pass judgement. We have to also consider where China, India, and other Nations were back in 1985 and where they are now. We have to consider the Global Nature of Companies and their earnings now as compared to 1985.

Where was the National Debt and or Global Debt in 1985 compared to now. Commodities prices, etc,etc,etc. Regardless, at the end of the Day, it's more about Price to Earnings Rations and can companies sustain them. That's mean a hell of a ton more than worrying about spikes on a Chart. What was relative in 1910 might not be relative now. What was relative in 1950 might not be relative now. What was Relative in 1985 might not be relative now. We live in a dynamic global economy, not a static one. Things change, and sometimes in a very big way.
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