S&P 2000 Coming - A Self-Evident Truth

Includes: DIA, QQQ, SPY
by: Danny Riley

The S&P and Dow both made fresh highs yesterday after the jobs report showed 288,000 jobs produced in June. It was a pleasant surprise for the US economy and the markets as a whole.

The Dow's push from 16000 to 17000 took 153 trading days, the seventh-fastest 1,000 point gain in the blue-chip's history. The Dow made its 14th record close and is now up 3% YTD and up 14% from a year ago. The blue chip stock index is now up 10,521 points, or 161%, since its bear market low on March 9, 2009.

The S&P set its 25th new record high and is now just 0.70% away from S&P 17000. The Nasdaq Composite index rose 88 points, or 2%, to 4485.93.

Why so strong?

There are a lot of reasons why the stock market keeps going up. When the Federal Reserve started its "taper" most traders we talked to believed as I did then, that the S&P would weaken. It has done the exact opposite.

Fed officials have done a great job smoothing over the debate but this year's push higher has little to do with the Fed bond purchase program.

While positive economic reports have helped, the main drivers are zero rates and job creation. After the non-farm payroll number was released, the S&P sold off a mere two points and then resumed its relentless rally. Concerns which had overshadowed the markets and the economy have been moved out of the way.

Summer markets

As traders filtered off the CME trading floor after the jobs report, there was already a feeling that the summer markets were upon us. With Janet Yellen reassuring investors that the Fed wasn't going to raise interest rates soon, we can be rest assured the Fed won't deflate the bubble in the financial markets.

With all the positive economic news and the psychological benefit of more people taking vacation, we think the US stock markets will continue to rise. Sure the public continues to distrust the markets and continues to wait for a pullback but it's been over 3 years since a 10% correction and it doesn't look like one is coming any time soon.

I am not a broker and while I do read charts I think it's important to continue to go with the trend and the path of least resistance. Stocks are going to continue to grind higher. Take a look at the last 15 trading days in the CME Groups S&P 500 E-mini:

June 13 +5.1
June 16 +0.9
June 17 +4.6
June 18 +15.3
June 19 +1.2
June 20 +2.9
June 23 -0.2
June 24 -9.8
June 25 +6.2
June 26 -0.7
June 27 +3.2
June 30 +0.4
July 1 +13.4
July 2 +1.9
July 3 +9.8

The ESU14 has closed higher 5 in a row or up 6 of the last 7 or up 12 of the last 15. We can expand this and you will see more up days but the critical point is, when the S&P does go down it does not fall very far. The moral here is to continue to go with the flow. If and when the S&P starts to roll over we feel strongly that we will know. Until then why fight City Hall?