Dow Jones Industrial Average Tries For 15,000 But Misses

May 5, 2013

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Major U.S. stock indexes put on a fireworks display with the Dow Jones Industrial Average trying for 15,000 and the S&P 500 closing above 1600.

The Dow Jones Industrial Average (NYSEARCA:DIA) saw its first intra-day high above 15,000 on Friday but missed a close above this lofty level, settling at 14973. However, the S&P 500 (NYSEARCA:SPY) reached an all time closing high milestone of 1614.

Last week was all about central banks and headline news as the European Central Bank cut interest rates and Wall Street celebrated a better than expected Non Farm Payrolls report on Friday.

For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) climbed 1.8%, the S&P 500 (NYSEARCA:SPY) gained 2% and the Nasdaq Composite (NYSEARCA:QQQ) gained 3%.

The Dow Jones Industrial Average (NYSEARCA:DIA) made headlines as it crossed the 15,000 level for the first time but then closed below it at yet another new record of 14, 9 73. The S&P 500 (NYSEARCA:SPY) managed to settle above the 1600 milestone for the first time. The last time the S&P 500 (NYSEARCA:SPY) crossed 1500, the last century landmark, was in March, 2000, just before the “dot-com” crash that started soon after.

On My ETF Radar

Major stock indexes, including the S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average (NYSEARCA:DIA) remain overbought and overextended in spite of the new highs being made, seemingly on a daily basis.

dow jones industrial average chart courtesy of StockCharts.com

In the chart above, you can see how the percent of stocks in the S&P 100 above their 200 day moving average is at extreme high levels from which moderate to major declines have previously started. The top graph is of the weekly S&P 500 (NYSEARCA:SPY) and the lower graph highlights the rise and fall of the % of stocks above their 200 day moving average.

It’s easy to see how levels similar to the current level preceded significant declines in the S&P 500 (NYSEARCA:SPY) while a rising % is closely correlated to a rising S&P 500 (NYSEARCA:SPY) index. Current extreme highs have been in place since just after the start of 2013, and as these high peaks tend to last for just a few months, the most likely next move for the S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average (NYSEARCA:DIA) will be down and could most likely start before the end of June.

ETF News You Can Really Use

Last week’s rally in the Dow Jones Industrial Average (NYSEARCA:DIA) and other major stock indexes was fueled by the European Central Bank cutting its interest rates, the Federal Reserve saying it was sticking to its quantitative easing program and might increase or decrease it going forward and the better than expected payroll report on Friday.

Earnings season is coming to a close and most would describe the results as modest, as best, as profits generally rose but top line sales and revenues, along with forward looking guidance, tended to disappoint.

The Friday jobs report came in at 165,000 which was better than expected and the previous two months were also revised upwards. However, beneath the surface, items like hours worked, underemployment and overall labor force participation pointed to a still weak job market.

Hours worked declined to the lowest levels of the year and overall income declined. The Labor Force Participation Rate is at a record low 63% and the employment to population ratio is at low levels not seen in the last 30 years.

Nevertheless, bad news continues to be OK and good news continues to be great as the current stock market rally continues. Many analysts suggest that now there is a grand disconnect between financial markets and the real economy and bubbles are being formed. Fundamentals eventually catch up to bubbles and “irrational exuberance” as we’ve seen so many times before.

So the new highs in the Dow Jones Industrial Average (NYSEARCA:DIA) come without any sort of any significant correction and in the face of significantly negative economic news.

Aside from the better than expected jobs report on Friday, European PMI remains in contractionary territory, March Factory Orders vastly missed expectations with a decline of 4%, ISM manufacturing fell perilously close to contraction territory with a print of 50.7, Chicago PMI slid to 49 and was a huge miss on expectations of 52.5.

Overseas, the news was similar with China PMI sliding closer to contraction territory with a print of 50.6, along with a decline in German PMI as Europe’s strongest economy grows weaker by the month.

But, in the end, markets rallied on the continued faith in central bank intervention and its ultimate success which even members of the Federal Reserve, itself, are beginning to doubt.

Richmond Federal Reserve President Jeffrey Lacker

Dallas Fed President Richard Fisher

Next week is light on economic news with job openings on Tuesday, weekly jobless claims on Thursday and federal budget on Friday.

Earnings season is winding down with major reports expected from Walt Disney and Priceline.com.