New High in the Dow

Wednesday’s market was decidedly upbeat even as the Dow bumped up against its January highs and stalled. Now, the question is, “Can it best those highs?” Now that the Dow is here, I guess it would be nice to see a little upside from the Dow so I could put some more of my cash to work on the down side. This move in the Dow has been, noticeably, without the broader market and this should be somewhat troubling to the bulls.

The point is not that they are worried about non-confirmations but that our analysis is showing some relative weakness in the broad market. What this means is that the market, the Dow, is making new highs but their stocks are not. This could lead them to be patient (should I say greedy) and hope their stocks move up with the Dow. So far, in the last couple of years, the Russell 2000 has been running well ahead of the Dow and now it is rather lagging it. From this view of the pond, the next move up will leave many stocks behind and will lead to a very large selloff as the Dow eventually tips over.

We are not sure if the Dow can actually make a strong showing above the January highs. The rest of the market is so far behind that a Dow flurry above its January highs would most certainly be short lived. The market in general is at a critical point right now with the Dow at a new high for the year (4 ½ years as they say) with the broader markets trying to catch up. This is not a well founded bull run but we have seen some upside.

Just a quick note about CAT, Caterpillar, a company we have mentioned here and a component of the Dow: This is the Dow leader up today to a new high. This stock needs some help if the Dow is going to keep going. CAT can't do it alone.

What happened on Wednesday? Well, as we mentioned, Bennie (was on the) Hill talking about the economy and said some contradictory things but the headlines were consistent with Higher interest rates coming. This, even as the Chairman made comments about the outlook for inflation over the next couple of years in the 2% range. We’re not sure the Fed will continue raising rates but we do know they still have an accommodative stance due to the huge increases in the money supply over the past year.

For the moment, I think the market was relieved that the Chairman finally spoke. The notion of continuity in the Fed seems comforting to the market even though there is talk of higher rates. The reaction in the dollar was positive. The dollar has enjoyed a particularly good rally over the last month and with the “tough” talk by the new Fed Chairman, that rally continued a bit more today. We think it’s about over.

Gold and silver were down on the tough talk and bonds were mostly calm. The stock market was not sure what to make of it all and was choppy all day with a positive outcome at the end of the day.

Thursday brings us January housing starts and we are always interested in those here at the Wednesday update. This report may not have much significance to trading but we are still going to pay attention to it. The underlying housing market has weakened considerably over the past six months and this should eventually lead to a slowing in the economy due to less consumer debt being allowed by the great housing ATM.

In that regard, we note tonight that WaMu, Washington Mutual, is laying off 2,500 at its home-loan business. WaMu is one of the largest mortgage lenders in the US and today it announced that it would reduce the number of its processing offices that provide administrative support to its home-loan business from 26 to 16. We just keep hearing negative news on housing.

Be patient and Be careful out there…

Dow Industrials: 11,058.97 +30.58
RYVNX: 18.80
RYAIX: 22.06
TLT: 90.21
BEGBX: 13.00