Blog Posts by Matt Nesto

The Dow (^DJI) and the S&P 500 (^GSPC) may be at record highs but stock prices are still far from peak. As much as this may sound like some sort of bad financial riddle, the fact of the matter is that by most accounts, stocks are still cheap.

"Whether you look forward, or to the past," explains Sam Stovall, chief equity strategist at S&P Capital IQ, "in general, it says we are trading at a discount," with an approximate 15% discount to long term average price-to-earnings ratios. Of course there have been times of triple-digit PEs and single-digit PEs, but all in, Stovall says, things "still look relatively attractive."

This kind of confidence in the wake of a four and a half month sprint that's come on the heels of a bull market that just marked its 4th year is not without basis, but it is also not without skepticism either, as legions of doubters feel the market is overbought and overdue for a correction.

Related: Strong Q1 Typically Leads to an Even Stronger Year, Says Stovall

For Stovall, the path to reaching his just-increased 12-month price target of 1670 for the S&P 500 is a tricky one that requires several layers of analysis and assumption. He explains in the attached video, economic projections for GDP growth in the second half of the year are improving and could ''perhaps hit 2.7% to 3%" this year." But that's just in the U.S.

We've all heard the routine in which emergency medical technicians rattle off a string of data to characterize the physical condition of a patient. By going through this checklist of vital signs, doctors immediately know where to focus their attention and what to fix first.

In much the same way, Steve Hochberg, the chief market analyst at Elliott Wave International, has been pouring over a list of stock market vital signs, and has concluded that there are many things wrong.

As Hochberg explains in the attached video, the record highs that stocks are hitting become irrelevant once you look at things in a different light.

"The market is going up in dollar terms, but when you look at the Dow or S&P, in real money terms such as gold or purchasing power divided by commodities," he says "the all-time high for the market is back in 1999."

By his math, if you "peel away the top layer" divergences start to appear and, as he recently wrote to subscribers, the rally in stocks is being fueled "by a toxic mixture of sky-high and waning economic conditions."

After powering to a record high to close out the first quarter on a positive note, things aren't going nearly as swimmingly now that we've turned the calendar pages to April. As much as the long-term track record for this month is positive and the second quarter results are good, many are still fearful that a correction could be in the cards going forward.

While not ruling out the chance of a correction, Sam Stovall, chief equity strategist at S&P Capital IQ, says the fast start year and biggest Q1 gain in 14 years does not necessarily mean the party is about to end.

"A strong first quarter has served as a running start for the rest of the year," Stovall says in the attached video. In fact, when the first quarter delivers positive returns, the odds of the next three quarters also delivering gains not only goes up, but so does the average total return. Here's how he summed it up in a note to clients today:

Since 1945, whenever the S&P 500 recorded a positive performance in the first quarter, the average performance for the three remaining quarters improved by an average 1.2, 1.1, and 0.4 percentage points, respectively. In addition, the entire rest of the year saw its average return of 6.1% rise to 8.9%, or be improved upon by 2.8 percentage points. Finally, the frequency with which the S&P 500 rose during the remainder of the year increased to 85% following a positive Q1 versus 74% for all years.

At the same time, Stovall notes that fears that 2013 might go on to a horrific finish like 1987. While he concedes that another crash is a possibility, but thinks that our first quarter rise would have had to been more like the 20% gain of 1987 to leave us in such a vulnerable position.

The midnight rush to get your taxes filed by April 15th is going to be heavier than usual this year, as up to 25% of taxpayers are estimated to wait until the final two weeks to take care of this annual headache.

But according to Yahoo!'s Farnoosh Torabi, host of Financially Fit and author of Psych Yourself Rich, taking advantage of a few simple tips and "investing in professional assistance" can more than pay for itself. For this installment of Investing 101, we outline five last minute tax tips that are frequently overlooked but can make the difference between getting a refund and writing a check.

1) Keep Records for All Charitable Activity

Writing a check to the Red Cross may be "an obvious deduction" but Torabi says there are lots of quirky costs involved in giving that aren't so clear cut. For example, she says be sure to keep track of things like "the mileage you use driving from charity to charity" or the cost of the "the ingredients you purchased" to make meals for the local soup kitchen. The point is, it's not just about giving money when it comes to making this deduction work for you, it's also about first rate record keeping.

2) Avoid Obvious Audit Red Flags

While Torabi says under-reported income is one of the most common traps tax filers fall into, there are others. For example, she says "the IRS actually has an equation to kind of base you against the average charitable deduction in your tax bracket."

Even people who aren't baseball fans will usually concede that there is something special and hopeful about opening day for America's pastime. The crack of the bat, the smell of hotdogs, the national anthem; there is truly something for everyone.

For some, opening day is also the equivalent of open for business and means it is time to get to work. Joe Peta, author of Trading Bases: A Story About Wall Street, Gambling, and Baseball, has an amazing story about becoming a different type of trader.

For 15 years he made a good living working on Wall Street, until a random accident sent him in a new direction.

"Two years ago I was crossing the street in lower Manhattan and I got run over by an ambulance," Peta recounts in the attached video. The accident left him alone, in a wheelchair and unable to work. It also gave him the time to start "looking very analytically at baseball."

It wasn't long before he began utilizing the skills he had acquired on Wall Street.

"As I did that, I started building a model and making projections and I realized they were very similar to the models I built on Wall Street to value stocks," he says. Before long his goal was simple: Remove the emotion, think like a trader, and apply that to baseball.

"To the victor go the spoils," New York Senator William Marcy famously said of the benefits that come with winning elections. Right now, the spoils are clearly going to the prettiest girl at the dance, also known as the U.S. stock market, which is flirting with a record high and basking in the glory of its best first-quarter gain since 1998.

Yet for all that victory, many investors are having a hard time embracing it, including Steve Hochberg, chief market analyst at Elliott Wave International, who says certain things are happening on the sidelines that are about to cause some real problems.

"There are a lot of things going on in the periphery that we think are going to have consequences [for the stock market] as we move forward throughout the year," Hochberg says in the attached video. "I think there is tremendous risk in this market, and one of the reasons is because no one thinks so right now."

Related: 3 Reasons Investors Shouldn't Cheer About S&P 500 High

Whether it's too many bulls and too few bears, a rising dollar, or long-term interest rates that have been rising since last July, Hochberg simply says that "everyone seems to be on one side of the ledger."

There's an old adage that goes, once bitten, twice shy, which implies that we humans are quick learners. Hurt us once and we'll be on guard to make sure it doesn't happen again. But what if it not only happened again, but a third time too? You'd think even the slowest among us would be able to pick up on the fact that there's a problem.

That's exactly what we are up against as we turn the calendar and head into April with a full head of steam and some nice year-to-date gains for the fourth consecutive year. The problem, as LPL Financial's chief market strategist Jeff Kleintop explains, is that the past three Aprils have all marked the starting point of corrections.

"We look at these 10 indicators that each of the last three years preceded the downturns," Kleintop says of his latest research note. "They were signals, indicators, that a downturn was coming."

In case you've forgotten, he writes that April 23, 2010, April 29, 2011, and April 2, 2012, were peaks that were followed by 10-19% losses.

"We're watching them closely again," he says, noting that half are signaling something you ought to watch out for now, whereas all ten were flashing warnings in the prior three Aprils.

Among the red flags he's watching this year, Kleintop says falling consumer confidence got a little bit too high and is starting to decline. "We can see back to the spring of the past 3 years that "confidence peaked and then really saw a sharp pull back."

By all accounts it has been an action-packed couple of weeks, starting with the day-to-day drama coming out of Cyprus, some big intraday swings by stocks, and most recently, a back-to-back punch of surprisingly weak housing and confidence data here at home.

While the broader market doesn't have a lot to show for it - either good or bad - a look within the benchmark S&P 500 index shows a creeping contagion has been building for the past ten days. Specifically, the sudden leadership of defensive sectors such as health care, telecom and consumer staples.

"The cyclicals are challenged right now from an earnings growth perspective," says Jeff Kleintop, chief market strategist at LPL Financial in the attached video. "So the defensives are probably going to have a better showing as we get into the heart of earnings season over the next couple of weeks."

Speaking of which, Alcoa's (AA) first quarter earnings will be released after the close of trading on Monday, April 8th, and it's 3-percent drop over the past 3 months has left it as the worst performing stock in the Dow Industrials. That counter-trend slump compares to a 10% gain for the Dow year-to-date, and is consistent with the sudden under-performance being seen in the Materials (IYM), Industrials (XLI), Financials (XLF) and Technology (XLK) sectors.