Dow Knocking at 12K

Friday’s stock market had a few news items to deal with such as the September retail sales report showing a drop of 0.4%. The reports were quick to point out that money spent on gasoline dropped nearly 10% and that most of that extra money was plowed back into spending elsewhere, all but 0.4% it would seem. The other major item was the University of Michigan’s consumer sentiment index which was up more than expected to 92.3 versus 85.5 last month. This is a curious number and shows that the public is certainly confident about their immediate lives.

Stocks closed the day up modestly with the Dow up about 12 points after a bit of a rocky start. Early on Friday, some of the big guns of the Dow got hit at the opening bell such as Home Depot (HD), GE and Boeing (BA). As the day wore on, the market managed to overcome those little problems.

We have done a little reading and considering over the past week and have come to the conclusion that the market is now showing its strength to the upside. To our way of thinking the market has not shown stunning strength but the Dow is making new highs. Underneath the surface we don’t see very strong technical foundations. One of those technical weaknesses is the volume which has just barely maintained average volume for the year. The other big technical weakness is that the prices don’t really seem to be going up very much.

There is very little market leadership right now looking at the new highs that are showing up on the list every day. The actual number of new highs as measured by the 5 day average highs is 20% below the same levels recorded in January and February. With the price of oil dropping about 25%, even the oil stocks are not leading the market anymore. The main idea is that the Dow is now trading at new all time high prices while none of the components of the Dow are trading at new all time highs.

With the prices advancing on the Dow and other market indexes we have a hard time arguing with the move in prices except that the prices are barely moving up. There are so many technical reasons for this result, many of which we have mentioned above. Other reasons include the bullishness factor or the complacency factor of the players. The recent rally has been accompanied by a boatload of bulls while the speculators are selling puts to push the volatility indexes down. We see in the numbers below that the VIX is now trading at levels very near the lows of the last several years. We can not get too bullish given all of these factors.

For those of you who are still in stocks, we think it would be a good idea to take a good hard look at these assets for possible sales. The market could go up a while here but you may want to take the time to find yourself exit points. For help in this matter, leave a comment in the comment section and we as well as our other readers can help with your investment questions.

From where we sit, the Dow is now the key to the world markets in general. As long as it is rising, every so slightly, the world can ride the wave. Once the Dow has stopped going up the world markets will try to figure out how to go down faster than the Dow. We are trying to prepare for this eventuality but this little detour of the Dow moving up has delayed the timing just a bit. We remain bearish, with its inherent current risk, but we feel that the biggest risk for stocks to go down.

Dow Industrials: 11,960.51 +12.81
VIX: 10.75
QQQQ: 42.43
RYVNX: 18.14
RYAIX: 22.14
RYCWX: 37.98
TLT: 87.16
BEGBX: 13.45