The bulls rode the back of the Financial sector and an upbeat view on employment from the Fed to power their way to fresh multi-year highs on Wednesday. The economic news came from the Beige Book which said the economy continued to expand “moderately” in November and December while signs of employment were picking up. Wells Fargo (WFC, $32.01, up $0.61) upgraded the Banks to “Overweight” and expects nearly a 60% earnings improvement for 2011 compared to last year’s numbers.
The Dow gained 83 points, or 0.7%, to close at 11,755 and touched an intra-day high of 11,782. The index closed at its highest level since September 2008 and looks poised to kiss 12,000.
The S&P 500 added 12 points, or 0.9%, and finished at 1,285 after peaking at 1,287. The index also touched a multi-year high in the same fashion and is easily on track to break our 1,300 target.
The Nasdaq jumped 21 points, or 0.8%, and was last seen at going out the door at 2,737. Tech reached a level not seen since November 2007 and is on track to attack 3,000.
As many of our long-time subscribers know, we are usually lights-out when calling market direction, even when we were in a trading range for 5 months, and as we approach these targets we will have to figure out our next move(s).
As you can see, the major indexes are right near our targets we have been calling for since October and if, or once we get there, the market might get a pullback.
Now, next week will be January option expiration and over the last decade it hasn’t been too bullish. In fact, the 3rd Friday of January option expiration week has been brutal with losses of up to 2% on a few occasions.
In a perfect world, the market moves higher through the rest of this week and on Tuesday which is normally an up day after MLK. The market is closed on Monday for the holiday so we are looking for the aforementioned price targets (12,000; 1,300, and 3,000) to be hit by next Tuesday or Wednesday. We doubt Tech gets to 3,000 but we should get close. After that, the market gets a slight pullback which will be where it gets interesting.
If the end of next week belongs to the bears then the Dow could fall back to 11,700 or 11,500 and then retest current levels after the “shakeout”, or, the market corrects a little. Either way, the Dow has been on a six-week winning streak so a pullback would be healthy.
Then again, there could be enough momentum to to where there is no pullback for the market. This is why we do our chart work every single day.
In any event, we are in prime shape on our current recommendations. We have closed some trades on strength while locking in profits on other positions that have already made triple-digit returns. Our other option recommendations are on longer-term plays with some solid catalysts behind them, so, with profits already locked in, we can afford to ride out any storm or simply cash out.
We have been in the hottest sectors since the bulls broke out of the trading range back in September but we also know they cool off and bull markets take a breather, even if it’s only going to be for a week.
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