Markets around the world followed US markets higher overnight, and the feedback loop goes on as US futures are a few handles higher this morning. The Dow is now knocking on the door of all-time highs and the S&P looks to make an assault on 2013 highs of 1530.
With major indices coming into such key levels, we as active market participants will want to see how they handle this area. There are three scenarios that could play out:
Scenario #1- The S&P touches 1530, brings out sellers and fails, so Bears can call a double-top.
Scenario #2- The S&P pushes through 1530 and stays above it for 30/60 minutes after the open. The index then squeezes all the shorts that have been rolling them up and induces some new money to come in. Then later in the day the breakout fails and we close below that key pivot (1530) to create some type of topping tail or short-term top.
Scenario #3- The S&P pushes through 1530, stays above it for 30/60 minutes, then squeezes all the shorts that have been rolling them up and induce some new money to come in. Later in the day markets close well, which could then open the door for a quick move to all-time highs of 1550-1570.
However this plays out, hopefully you've figured out a trading plan on how to approach the markets.
Even if you went to cash on February 25 you've had multiple opportunities to put some positions back to get back involved rather than having short on the brain. Macro investors are getting rewarded as equities continue to prove they are far from dead. There will always be opportunities, but they show themselves in different ways.
Although it is prudent to have a plan to approach the indices, a stock specific approach remains best. You have several leading stocks making new highs, which is a healthy bullish environment.
Google (GOOG) continues to lead the charge in high beta tech. LinkedIn (LNKD) has been on fire since earnings. Yahoo! (YHOO), a pick in my 2013 predictions. is stretching out of a lower base as investors cheer early moves by new CEO Marissa Mayer. Home Depot (HD) has joined the party after a strong earnings report last week and has been very strong.
The market continues to march higher despite persistent weakness in Apple (AAPL). The former market leader filled a gap yesterday from January 2012 down around $420. What's next for AAPL?
Banks continue to act well. Goldman Sachs (GS) is the leader and looks like it could make another run at highs. Bank of America (BAC) lagged a bit yesterday but holding the $11 area is constructive. If the market does get a pullback at some point, be careful to see how BAC acts relative to its peers.
As we see leading stocks extending to new highs, we are also on the lookout for stocks that have been strong over the last few years that have upper level bases. Nike (NKE) isn't always on momentum traders' radars, but has a nice upper level pivot. A break above $55 could lead to higher prices. eBay (EBAY) is another strong stock with a calculated upper level pivot. The first obstacle for EBAY is the $55.50 area before it potentially takes aim at historic highs.
The credit cards have also been one of the strongest sectors over the past few years, and have been consolidating near highs. Visa (NYSE:V) has been in a long-term consolidation and looks like it could be in store for another leg higher above $160.
We have also seen several value oriented tech names perk up this year. Most notably, private equity investors moved swiftly to take Dell (DELL) private because of perceived value at its current levels. Microsoft (MSFT) has become a perennial underachiever, but also has a huge cash hoard and decent growth prospects if they could ever get a new product launch right. Technically, if the stock can break above $28.20 it could get some interest.
*DISCLOSURES:Scott Redler is long MSFT, GS, F, FB, BAC, EBAY, ZNGA, WFC, NKE, WMT. Short SPY.