Should the market's new highs scare you?
More record levels for the Dow and S&P 500 on Friday, but stocks are is showing signs of being overbought. Here's what to watch for.
This is not a joke. The stock market has definitely become frothy, at least in the short term, and a sell-off is building. It's a question of when. So, if you're in the market, it'll be best to think about when you want to sell to protect your gains.
At the same time, you have to think about how deep and how long the sell-off will be. If you think it will be a short pause, waiting it out may be a valid tactic. A big break may require some moves.
The Dow Jones Industrials ($INDU) and the Standard & Poor's 500 Index ($INX) not only finished the week at closing highs, but the closes for both index were intraday highs as well. The Dow ended up 36 points to 15,118. The S&P 500 finished at 1,634, up 7 points to 1,634.
The Nasdaq Composite Index ($COMPX) closed at 3,436.58, up 27 points. That was two one-hundredths of a point below 3,436,60, its intraday high and its highest close since Nov. 3, 2000. But here's why bulls ended the day reasonably excited. A decent gain on a Friday is often bullish. It means investors want to own stocks over the weekend because they expect more gains ahead. Twenty-three of the 30 Dow stocks were higher, led by IBM (IBM), UnitedHeath Group (UNH) and Johnson & Johnson (JNJ).
So were 377 S&P 500 stocks and 85 stocks in the Nasdaq-100 Index ($NDX), which was up 20 points to 2,981, its best close since Nov. 15, 2000.
The Dow was up 1% for the week, with the S&P 500 up 1.2% and the Nasdaq up 1.7%. For the year, the Dow is up 15,4%, while the S&P 500 has gained 14.6% and the Nasdaq 13.8%. The major averages have not had a losing month since November.
Now to the bad news. The Dow, S&P 500 and Nasdaq ended the week trading 10% higher than their 200-day moving averages. Not signals of imminent pullback, but signals that things are frothy.
Their 14-day relative strength indexes are all above 78. The Nasdaq's was 85.77 on Friday. Those are a clear overbought signals, and some pullback is near. The RSIs topped 70 in late March 2012. A sell-off that trimmed nearly 10% from the S&P 500 began on April 3, 2012.
The week ahead includes a host of important economic reports, including retail sales on Monday, producer prices on Tuesday and consumer prices and housing starts on Thursday.
But the big noise you will hear all week is: When will the Federal Reserve start to stop buying bonds and letting interest rates rise?
This is both a joke and a worry. The joke is the Fed itself won't raise rates until next year at the earliest. But the worry is that bond traders will take the chatter seriously and start selling anyway.
There was pressure on bonds this past week as stocks moved up. The 10-year Treasury yield moved up to 1.9% on Friday from 1.752% a week earlier, as the market rally pulled money from bonds.
Why? Last week's jobs report suggested employment is holding up. Thursday's jobless claims report was even more bullish. Claims fell to the lowest levels since January 2008.
Moreover, the combination of tax increases and sequestration and an improving economy are trimming the projected federal deficit substantially. Figures from the Congressional Budget Office show that receipts are 16% higher in the first seven months of fiscal 2013 compared with a year ago.
The import: The CBO has projected an $845 billion deficit for the year. But that figure is now "hopelessly outdated," Greg Valliere of the Potomac Research Group wrote clients this week. Look for a deficit closer to $700 billion. The deficit was $1.1 trillion in fiscal 2012.
Next week includes some very important earnings reports on Wednesday and Thursday.
Before Wednesday's open, Macy's (M) and farm-equipment maker Deere (DE) report. After the close comes Cisco Systems (CSCO). Macy's $47.23 close on Friday was an all-time high. The shares are up 21% this year.
Wal-Mart Stores (WMT) and Kohl's (KSS) report before Thursday's open. After the close brings reports from Aruba Networks (ARUN), Autodesk (ADSK) and Nordstrom (JWN). Wal-Mart hit a 52-week high on May 3; Nordstrom's Friday close was a 52-week high.
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No, the FED's 85 Billion a month pumping up of the stock market should however...
The moment the presses stop, BAIL...
If bond traders start selling, they're going to start buying equities.
4/17/13 MSN Bears were harping about commodities falling, Wall Street stalling, the Valkeries are calling investors to their doom. DJI 14618.
Today DJI is 15118, 500 points higher and it's frothy, is it?
Astute investors have learned to tell a good stock from a bad writer. Buy the one, dump the other. Take a profit, but there's no need to head for the panic bar just because you saw a bear in the street. As long as your corp. is still earning revenue and profits, paying dividends, increasing them occasionally, buying its own shares back on dips, there's no need at all to even think you'll need to dump and run.
Yes, you have no advanced notice of when the Fed abandons this madness. The rich will get theirs first and you MIGHT get part of the scraps. Inevitability hurts when you keep convincing yourself it won't happen. Inevitably... it will.
15 years ago there was $50-60 Trillion in currencies worldwide. There is more than $1 quadrillion out there now. That's a 99.5% inflation from validated currency-to-assets, to all this fake money. What are the odds that YOU will see anything in the compression?
The top dogs in the banks are greedy but not stupid. If you will look back and what happened in Japan. The public were savers. The greedy bankers paid very low interest to their depositors. They then used the depositors money to buy up a lot of America. This made some of the insider bankers very rich, but they screwed their own people. All of this came to roost and the Japanese economy tanked. I believe the same thing is happening here. The top dogs in the banks and Corporate America paying themselves tons of money, while not paying the bank depositors practically anything, and dividends are not much better. Some of the banks are "too big to fail". The real threat is that the banks have too much influence in Washington through Lobbyists influencing greedy politicians. BREAK UP THE BANKS and reduce their influence in Washington.
Yes, the stock market is hitting all time highs, but the supposedly new wealth will not buy much because of the devaluation of our currency.
KOO, the question whether you are on medication or just clueless. You say Buffet is a right wing tight-azz conservative. Pull your head out. This guy believes in raising taxes on corporations and individuals. You show me someone else who you would call a tight-azz conservative who supports buffet in this? Well you can't, because conservatives do not support this and Buffet does. Use logic if you are able and see that makes Buffet anything but a conservative. Duh!
But then I am writing to a leftist and leftist live in fantasylands of "if I say it, it is true". So you say Buffet is a conservative, therefore he is, because you said so. WOW!
I think everyone has cut back on spending. You can see that on trash day and by driving around.
I don't see many new cars with paper plate.
No more big TV boxes in the trash pile.
If people are spending it's on home repair or their lawns.
As for unemployment. I went to the dirt yard the other day and everyone of their employees hit me up for some kind of job. One wanted to install the dirt. The guy that delivered the dirt at my home even handed me his handy man card.
This market is only being pumped by uncle sam. They are building even a large bubble then what hit last time. A lot of these companies stocks are over valued by as much as 20%.
When this market starts to crash and everyone heads for the hills at the same I just hope you folks are not to greedy and lose your pants to the large banks and uncle sam selling their shares first.
Naw ..The higher it goes...
The faster and farther it gonna fall...Its just a matter of time...
Jerry Mac....Do you "only follow" Markets and Companies for 1 Quarter or 60-90 days...?
I'm pretty sure "revenues" have been up, until this last quarter ?
Earnings on many are hitting close or better to consensus, but guidance is weak on some..
Weakness in Europe and China pulling back to the Homeland, have played a big part.
Foreigners are investing in our Markets for safe haven, and buying up some of our real estate.
Do you wonder or consider, WHY that is...??
"A global 2012 poll reports that 59% of the world's population is religious, 23% are not religious, and 13% are atheists."
What are the other 5%?
Wow, what an article. If I paraphrase, the market might go down.
Ok, pay me $250,000 a year for such profound statements.
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