Big news: The Dow Jones Industrial Average made an all-time high Tuesday, closing at 14,253.77. It set another new mark on Wednesday, advancing 42.47 to close at 14,296.24. But there was little celebration in the financial media, as skeptical journalists bent over backwards to not get carried away with the hype such magic numbers inevitably bring. Even congenitally optimistic Wall Street was strangely subdued.
And two long-time bulls, whose sanguine views were featured in this column last September, sounded cautious notes this week -- at least for the short run.
On Monday, Craig Johnson, technical market strategist for Piper Jaffray, declared that the market had entered the "drop" phase of what he called "a hop, a drop, and a pop," after a key indicator gave a "sell" signal. Citing "technical damage" from a "deterioration in the market internals over the past several weeks," he recommended that investors lighten up on stocks for a while. "We ... suspect a 'drop' (a pullback of 5% to 10% in the S&P 500) is now likely to unfold over the next several months," he wrote. That sell-off could take the S&P down to around the 1,400 area, a key support area where he expects it to retest its 40-week moving average.
Then, on Wednesday, Mark Arbeter, chief technical strategist of Standard & Poor's Capital IQ, urged subscribers to "take profits here and on any additional price strength. ... It has been quite a run, and we think it's closing in on the time for the stock market to recharge its batteries." He added that the S&P was close to his recent target of 1,550, and that "major long-term chart resistance ... lies between 1,550 and 1,575."
"It would shock me if we just busted through this area, especially considering the run we've had in recent months." Arbeter wrote. That's why he thinks we could see "a decent pullback in the coming weeks of 3% to 5%." That would take the benchmark index back down to around 1,465. Last September, Johnson and Arbeter were as bullish as you could get. Back then, Arbeter talked about "the end to the secular bear and a new secular bull emerging," while Johnson said we were in "a multiple-year run."
Arbeter predicted correctly that "we can get near or top the old highs in the first quarter of 2013." In his missive this week, he said he thinks we're still heading higher. "We do not think we are anywhere near a major, long-term high," he wrote. And Johnson maintains his price targets for the S&P of 1,700 this year and 2,000 in 2014. He says the coming pullback "may represent the single best buying opportunity this year."
So, no need to panic, folks, especially when so many of your fellow investors are still so glum -- even after four years of rallies and a 118% gain in the Dow from the 2009 lows. On Wednesday, Arbeter alluded to "a handful of sentiment indicators that are bordering on bearish extremes, with many coming from individual investors." For instance, Wednesday's Investor Sentiment Survey conducted by the American Association of Individual Investors showed only 31% of responding members were bullish, while 38.5% were bearish. At the previous record high in October 2007, AAII's bulls overwhelmed bears by 55% to 26%. Near the January 2000 peak, bulls swamped bears by 75% to 13%.
In a poll taken by the Fox Business Channel Tuesday, 78% of respondents said the bull run wasn't real, while only 22% said it was. Granted, that wasn't scientific, and Fox's audience is more likely to distrust the Federal Reserve's easy-money policy. Since the financial crisis began, central banks worldwide have pumped $6 trillion into banks' reserves, supporting a global rally in stocks and other risk assets. But that's my point: Markets have continued to rally through European debt crises and fiscal stalemate here, high unemployment throughout the developed world, power struggles in China, nuclear threats from North Korea, and fears of impending war with Iran. Those problems could flare up again in a heartbeat, but the market's underpinnings remain strong.
I wouldn't be surprised to see a pullback over the coming weeks. The S&P is up 14% from its November lows, and we're into March already. The seasonally weak period for stocks traditionally begins in May, but in recent years, it's started in April.
So, if you've missed the rally, I wouldn't jump back in with both feet right now. But if you've stayed the course and made good profits in this bull market, I might take a little money off the table (less than 10% of your stock holdings) while keeping the rest in equities for the long haul.
"Don't fight the Fed" and "Don't fight the tape," the late Marty Zweig used to say. So, if the Fed keeps rates low and continues to buy bonds to stimulate the economy, then any correction we have now will be a blip in a bull market that ain't over 'till it's over.