Daily State Of The Markets: Worried About The Rally? Join The Club

 |  Includes: DIA, SPY
by: David Moenning

Good morning. If you find yourself worried about the current joyride to the upside and a brand new all-time high for the DJIA is causing your acrophobia to kick in, join the club. Although the stock market as measured by the S&P 500 is up more than 130% since the credit crisis bear market ended March 9, 2009 and the index is up close to 40% since the August 2011 mini-bear market low, this is one of the most unappreciated, mistrusted, and dare I say, hated rallies I've ever witnessed.

Even CNBC, which normally is one of the most blatant cheerleaders of market gains, has been reticent to fully embrace the bulls' recent run for the roses. Despite their countdown to new all-time high ticker, the financial news site ran headlines after the close both Monday and Tuesday casting doubt on the rally's staying power. Yesterday's article was titled "Dow Breaks Record But Party Likely Won't Last." The article cited Piper Jaffray's prediction that stocks will now fall that the Dow has hit all-time highs, but then rally later in the year. However, make no mistake about it; the article casts aspersions at the idea the idea of adding to positions here.

I could probably provide a dozen more examples of experts (both respected and otherwise) offering up analysis that basically says the same thing: "Yea, we could go up for a while until the S&P hits its all-time high of 1565, but then look out, because we're going down hard. But, oh yea, we'll rally into the end of the year." So, despite the fact that lots of these folks - you know, the ones who just love to make precise predictions about what is going to happen next in the market - failed to see this rally coming. But, of course, now they are telling us with absolute certainty that this year will be effectively be a repeat of last year.

Sure, stocks are on an impressive run right now. Yes, the market is overbought (again) and there hasn't been much in the way of selling pressure seen this year. And yes, the move has been a bit too "straight up" for my liking. But, I've got to say that the market rarely, if ever, plays out the way the masses expect it to. And just because the market experienced a serious correction (or worse) in each of the last four years doesn't mean the exact same thing is going to happen at the exact same time this year.

The funny thing is that the folks telling us to beware of the "big drop" that is undoubtedly coming in the near future are citing the same old reasons for the expected decline. I keep hearing about Europe and the budget impasse. But, haven't we JUST been handed new inputs from these areas? And didn't the market JUST ignore them?

Don't get me wrong, I'm NOT saying that stocks will go straight up from here. And I'm NOT saying that we won't see a healthy correction sometime soon. The key point is I'm not predicting much of anything as my game is about staying in tune with what IS happening - not worrying about what "should" or "could" happen next.

Another complaint from the bear camp is the market's leadership portends bad things to come. The argument is that with sectors such as consumer staples leading the charge, the market is simply not healthy. No, we're told that it should be the banks, technology, and industrials leading the way at this stage of the economic recovery. So, if defensive names such as staples are leading, it must be because investors are worried about the economy.

On that score, here's something to consider. To be sure, the stock market "feels" like it is extended. Yet at the same time, there is some evidence that (a) the public is starting to come back into the market and (b) some of the hedgies are starting to move money from bonds to stocks. So, let me ask you; if you manage billions and your thesis is that it is time to start moving some of your portfolio out of bonds and into stocks, where are you going to put the money? And if you are John Q. Public, who got burned badly in 2000 and 2008, but now feel a need to get back in the game, where are you going to invest?

Isn't it true that every pundit with a keyboard has been yammering on about dividend paying stocks over the past year or so? Isn't it widely accepted that investors should be more conservative with their equity investments in the future? As such, doesn't it make sense that a great many folks might be doing just that via the staples, the utilities, and the telecoms? Never mind the fact that I believe this to be sheer investing folly. Isn't this what the public has heard?

My points this morning are as follows. First, I think it's okay to be invested during rallies and it is okay to say that I don't know when the rally will end. Second, I believe trying to predict what the market is going to do next is a fool's errand. Third, it seems that lots of investors are expecting the market to do exactly what it has done for the past four years. And finally, I think people are "fighting the last war" and are unwilling to accept that markets can change.

Again, I don't have the answer to the question of what comes next. But I also don't think you need to have the answer in order to be successful. Nope, I believe wholeheartedly that investors should simply have a plan to deal with whatever comes next. So, my advice is to put down the crystal ball and enjoy the ride until it ends.

Turning to this morning ... Momentum from the Dow's move to an all-time high coupled with indications that Japan will soon attack deflation with additional easing pushed overnight markets higher. In the U.S., traders are waiting on the ADP data with futures currently pointing to further gains in the early going.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell ...

Major Foreign Markets:

- Shanghai: +0.89%

- Hong Kong: +0.96%

- Japan: +2.13%

- France: +0.18%

- Germany: +0.99%

- Italy: +0.04%

- Spain: +0.29%

- London: +0.31%

Crude Oil Futures: -$0.14 to $90.68

Gold: +$1.10 to $1576.00

Dollar: lower against the yen, higher vs the euro and pound

10-Year Bond Yield: Currently trading at 1.919%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: +4.06

- Dow Jones Industrial Average: +42

- NASDAQ Composite: +4.2

Thought For The Day ...

Time you enjoy wasting, was not wasted. -John Lennon

Positions in stocks mentioned: none