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S&P Makes New All-Time Closing High After 10% Q1 Surge

John Darsie

The S&P made a new all-time closing high Thursday, a fitting end to what has been blockbuster first quarter. With today's 0.39% gain, the S&P finished the quarter up an even 10%. The Dow also made a new all-time closing high, but that old news. While the indices are trading at historic levels, you still don't feel that sense of exuberance that often accompanies milestones. I think all market participants realize that the world economy and markets still face significant obstacles, with this week's headlines out of Europe a reminder that no matter how far the can is kicked, it still exists.

Also, the fact that defensive sectors continue to lead could give some traders hesitation. Today, that theme held true as the healthcare and utilities stocks were strongest. The Utilities SPDR ETF (XLU) gained 1.11%. I talked about the bullish pattern in UnitedHealth (UNH) during Wednesday's recap, and today it continued to the upside. UNH, a Warren Buffet favorite, is my favorite healthcare stock, and I think you could see it continue higher.

In today's Morning Call we focused on the theme of defensive sectors and value stocks performing well. The stocks we discussed are slower movers, but have had significant price appreciation recently and boast healthy dividends. McDonald's (MCD) performed best today among the group we talked about, breaking just out of its upper level base. It still has room back up to all-time highs at $102.22.

Two other upper level patterns that I have highlighted the last three days are OpenTable (OPEN) and MercadoLibre (MELI), and both look close to breaking out. OPEN looked like it wanted to go on Tuesday but failed in the low volume tape. Today, it perked back up and the pattern remains intact. MELI has had three days of very constructive price action and looks like it wants to break out.

In today's Morning Call I also talked about reason to potentially be wary of the banks. The sector had been one of the strongest in the market since November, but has started to weaken over the last two weeks. The banks are sensitive to news about the European debt crisis, and the lack of headlines on that front have allowed them to perform well though. The last two weeks, though, the Cyprus bailout has been in focus, and then we had the weak Italian debt auction yesterday morning. Both are a reminder that the European crisis is alive, and that we should be wary of the banks after a big rally.

Goldman Sachs (GS) is one of the more sensitive US banks to the European crisis, and the price action as reflected that. News that Warren Buffet was buying warrants in the stock helped boost the stock yesterday, but the bounce was small and GS showed relative weakness today. The stock is teetering on the edge of upper level pivot support.

Morgan Stanley (MS) looks like an even more compelling short set-up, in my opinion. Like GS, it is teetering on the edge of upper level support and has a gaping gap that looks like it wants to get filled. If you want to be short a bank stock, I would personally choose MS.

After a 10% gain, can the market continue to rally the rest of 2013? That remains to be seen, but at T3Live we don't make trading decisions based on blind predictions, we game plan calculated entries and exits based on patterns and other technical indicators in order to manage risk. One thing remains constant, the market will always provide opportunity if you know where to look.

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*DISCLOSURES: No relevant positons