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The Trend Is Higher but the Road to New Highs Will Be Bumpy


There's a long list of football players whose individual skills and successes will likely take them to the Hall of Fame. Yet there's a gaping hole in their gridiron resumes: they've never won a Super Bowl. Whether it's fair or not, winning the biggest game of them all does matter and carves out a special niche in football history.

In much the same way, investors have maintained their composure as the other, lesser indexes have muscled their way to fresh all-time highs, patiently waiting and reserving their celebration for the Big Dog — the S&P 500 — to get back into uncharted territory. Sure, we're getting close. But until we actually break the record, it will stand as a black mark on an otherwise impressive rally.

"Small caps, mid caps, transports, the higher beta cyclical areas have made all-time highs," says Jonathan Krinsky, chief market technical analyst at Miller Tabak & Co. "So you kind of have to give the benefit of the doubt to the big caps following suit."

This large-cap lag is not unusual, he says, pointing out that it took more than a year the last time for the Dow and S&P 500 to set new highs at the last market peak in 2007. In the meantime, he's targeted a few key resistance levels until the moment of glory finally drives.

"Big, round numbers tend to get a lot of attention," Krinksy says. "So getting above 14,000 for the Dow is nice, and getting above 1500 for the S&P is nice, but those are just psychological levels. And, for me, it's really 14,198 for the Dow and 1523 for the S&P." After we get through that, he says, then traders will target the 1575 — record levels.

As much as winning "the big one" is the goal, the dream, the target, what comes afterward is not nearly as enticing. While Ravens quarterback Joe Flacco became the 26th consecutive Super Bowl MVP to announce his "I'm going to Disney World" travel plans amidst the post-game celebration, there's sure to be a letdown after the euphoria. The same is true for stocks, which themselves have proven that the journey back to earth, after reaching the pinnacle, can be tough. In fact, The Wall Street Journal reports on findings from Schaeffer's Investment Research that show:

"In the 27 instances since 1999 that the Dow has crossed a 1000-point interval, it has averaged a 0.5% decline in the following week and a 0.3% drop in the ensuing two weeks, yielding positive returns less than half the time. Schaeffer’s says. One-month, three-month and six-month returns following such milestones have, on average, produced negative results. And over a one-year time frame, the Dow has averaged a 4.1% decline following the crossing of such big, round numbers. "

The point being, enjoy the path to success and the road to new heights, because the view from the other side is typically not all that rosy.