Happy anniversary! This weekend (March 6th) marks the one-year anniversary of the bear-market low. Wow! What a long, amazing road it's been. The S&P 500 hit 666.79 intraday on the 6th and closed at 676 on March 9th, 2009. Since then the S&P 500 has rallied more than 70% off its lows. The Dow Industrials have rallied 63%, the NASDAQ composite soared 84%, and the small cap Russell 2000 index has gained 95% off its 2009 low.
Last week alone was pretty impressive with significant gains across the board for the major averages. Most of them broke out from the bull-flag pattern I mentioned. A week ago I suggested the S&P 500 could be setting up for a run toward 1150 and it's almost there. As a matter of fact the bull flag target should put the S&P around the 1150 region, which is conveniently very heavy resistance from January 2010. Bull flag targets for the NASDAQ should be around the 2350 area and for the Russell 2000 around the 670 area. Now that doesn't mean the rally will fail at these levels but readers should be ready for some profit taking.
What's fueling this move higher besides the bull market climbing the wall of worry I outlined a couple of weeks ago? First and foremost the jobs report on Friday was better than expected. It's true that we're still losing jobs but they're getting better. Combine that with no inflation and there should be no risk of the Fed raising rates any time soon. Meanwhile China's economic boom is still intact. There has been a lot of worry the last few weeks that China is trying to slam on the brakes before its economy overheats. Comments out of Chinese officials this past week said the country was on track for 8% growth. This drove gains in commodity-related stocks, especially coal.
Bulls also scored a win in the Greece department. For the moment worries about Greece defaulting on their debt are on hold. The country was able to successfully sell five billion euros worth of five-year bonds albeit at 6.3% interest. You can be sure the rest of the EU nations were not going to let this debt auction fail. Greece still needs to roll over another 15 billion worth of debt by the end of May but the recent success has moved the dial on Greece from a boil to a slow simmer. I wouldn't be surprised to see the dollar's rally correct and the euro and British pound bounce for a little while.
This week looks pretty quiet. There are no major economic reports. The only significant event will be another record-setting pace of debt sales for the U.S. The Treasury department will auction off $210 billion worth of bonds. No one is expecting any fireworks but it could make headlines given the quiet week.
In my last commentary I was growing bullish on stocks. I am more bullish today but the S&P 500 will probably struggle to break through resistance at the 1150 level. The market could bounce around the 1150-1120 zone for a while before moving significantly higher. I am encouraging that we are seeing some sectors breakout past their recent tops. The Russell 2000's strength is very impressive. The banking indices are getting close to breaking out past significant resistance and if they do they could fuel the rally for weeks to come. Biotechs were a notable winner last week. The defense, retail, and insurance sectors hit new 52-week highs.
Chart of the S&P 500 Index:
Weekly Chart of the S&P 500 Index:
Weekly Chart of the Russell 2000 Index:
LONGER TERM OUTLOOK
Previous Comments on my Long-Term Outlook:
My long-term outlook has not changed. I still expect the economy to see a double-dip, "W"-shaped rebound with the second dip in 2010 (some analysts are predicting it will not show up until 2011). Lousy consumer spending, rising foreclosures, and lagging job growth will be the main culprits. Several weeks ago there were some comments out of the U.S. Treasury concerning foreclosures. The Obama administration's HAMP loan modification program can only help a certain number of homeowners and one official said that even if the HAMP program was a total success we should still expect millions of new foreclosures. This only reinforces my own belief that we will see another tidal wave of foreclosed homes in 2010 and 2011. Some analysts are forecasting upwards of six million foreclosures in the next three years. What is that going to do to consumer confidence and consumer spending? It's not going to help! You can review my long-term outlook here. It's the second half our my "Two Months Left" commentary.
~ James Brown