Investors and traders are pondering that question this weekend after the S&P closed right at the prior highs. It would take a gap down open on Monday to prevent left over short covering from Friday from pushing the S&P to that new high. Traders in denial on Friday that did not cover their shorts will be worried all weekend in hopes of headlines from overseas to push the markets lower at the open. If those headlines do not appear or positive headlines appear instead, we are likely to make those new highs on Monday at least on the S&P.

That could lift the Dow as well but the Dow is still about 200 points below the 18,312.39 historic closing high. It would take a very strong rally to power the Dow through that level after a 200-point move just to get there.

The S&P is only a point away from the 2,130.82 closing high. This might as well be a done deal for the S&P.

The broader NYSE Composite failed to reach the strong resistance at 10,640 and that is still 600 points below the historic high. The broader market is not as bullish as the big cap S&P-500.

The British pound fell another 3.5 points to 126.54 last week on the way to 120 or even lower according to analysts. The euro only fell 1 point to 107.74 but I expect 105 before the decline is over.

Gold rallied another $23 to $1,367 and coming very close to that psychological $1,400 level. There are currently more than 285,000 long contracts on the gold futures and only about 25,000 short contracts. They call that a "crowded trade" and once everyone heads for the exits it could cause a panic. I do not have a clue what could cause that in the current environment but it is always the unexpected events that cause the most damage. Strangely, gold is rising along with the dollar and that almost never happens.

This is the flight to quality trade and it shows no signs of abating.

The yield on the 10-year treasury fell to another historic low at 1.336% on Wednesday but rebounded slightly to close the week at 1.366%. The 30-year yield did close at a record low on Friday at 2.11%. Refinance your mortgage NOW.

The Semiconductor Index is only 45 points from the historic high at 746.08. The index rose +2.8% on Friday after Bernstein upgraded Intel. Nvidia broke out to a new high and even the beaten down Apple suppliers rose slightly on short covering.

The biotech sector has rebounded steadily since the Brexit bottom and is nearing initial resistance at 3,275 on the Biotech Index. They have recovered nearly all of the post ASCO drop but the rate of climb is slowing. That resistance may be a good shorting opportunity if the market is not surging higher.

The Dow Transports rebounded back over 7,500 but there is stronger resistance ahead. The decline in oil prices is good for the airlines but bad for the railroads because they will be hauling less pipe and frac sand if prices do not rise. The 8000-8260 level is going to be a challenge.

The S&P-400 midcap index is still below its highs at 1,549 but it did recover all the post Brexit losses. The May high at 1,525 should be the next hurdle. If the midcaps can breakout it could pull the rest of the market higher. They have been the strongest sector since the Jan/Feb lows.

The percentage of S&P stocks over their 50-day average rose to 72.55% as of Friday.

The percentage over their 200-day average rose slightly from 69% to 71.54% and I would have thought that would have been more given the 700+ new 52-week highs on Friday.

The markets will be grabbing the center of attention next week as the S&P flirts with the new highs. However, it is what happens after it makes a new high that will matter. If traders bail once that high is reached it could turn into a double top. If portfolio managers begin chasing prices higher we could see an extended breakout until cooler heads prevail. The week could be emotionally charged for the first couple days but worry over next week's convention could cause some profit taking.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email