U.S. Markets open in 3 hrs 15 mins

S&P 500, Dow Hit Record Highs: Investors Waiting on Transports to Confirm, Says Lutz

S&P 500, Dow Hit Record Highs: Investors Waiting on Transports to Confirm, Says Lutz

To say that it was a hot day on Wall Street would not be an understatement, or a reference to New York's onging heatwave.  It began with the little guys, the Small Caps (^RUT). Then the big boys followed suit, as both the Dow Industrials (^DJI) and the S&P 500 (^GSPC) burst back above record high levels set two months ago. And finally, it was time for the Transports (^DJT) to go places never seen before and set record highs of its own.

For some, the catalyst for the record run-up is attributable to another day of conciliatory commentary from Fed Chairman Ben Bernanke. To others, the spark came early in the day, thanks big profits at a Midwestern railroad company.

"Union Pacific achieved record financial milestones this quarter," said Union Pacific (UNP) CEO Jack Koraleski in a statement released this morning which showed the Omaha-based railroad's earnings rose 13% to $2.37 per share. It's a scenario that has placed outsized importance on the prospects of this $70 billion business, which dominates the Transportation index.

"What's important about this is that Union Pacific is about 14% of the Dow Transportation Average (^DJT). It's the largest member," says David Lutz, head of ETF trading at Stifel Nicolaus. "A lot of the market mavens out there have been waiting, slowly but surely, for a confirmation of the Dow Theory, where both the Industrials and the Transports are making new highs."

What's interesting, Lutz says, is that one of the key drivers of Union Pacific's results is also one of the biggest threats to a raging bull market that has lifted stocks nearly 20% so far this year. He's talking about rising gasoline prices, and says if their recent uptrend continues, and the average pump price continues to rise, there could be trouble.

"In the last five years there has been three times when the average price of gasoline in the United States has hit $4 a gallon," Lutz recalls. "Every time has marked a market top."

That's not to say this Baltimore-based trader is bearish.

In fact, Lutz cites a number of reasons why he believes the momentum in the market could lift the S&P to 1,750 by year-end. Topping the list is the easy money policies of Federal Reserve chairman Ben Bernanke, who is back on Capital Hill today for a second day of testimony.

At the same time, Lutz is confident that beyond UNP, earnings season will easily top expectations and should propel confidence, as well as the fact that he says positive first-halves have lead to positive second-halves, and fresh highs, 80% of the time.

More from Breakout:

I Wish Bernanke Would Go Off on Congress: Ritholtz

Short Bonds: It’s the Best Trade in Market Right Now, Says Hoenig

Glass-Steagall Is Needed to Protect Main Street From Wall Street: Ritholtz