Encouraging forecasts from JPMorgan Chase & Co. and Intel Corp. raised expectations that the economy is in recovery mode. JPMorgan beat exptations as mentioned by Itz yesterday and the stock has broken over resistance heading to $53. >>READ
Google reports tomorrow, the chart has put in a "Cup & Handle" formation, Itz is again looking for Google to beat and follow Intel higher.
There's no doubt things are turning around and that this is a BULL market...BUT... it is overbought in the near term. That's not to say it cannot continue to trend higher, markets love to fool you and will out last those who short; until they capitulate. Talk now is that the retail investor who has been on the sidelines is going to give the market's the next 'boost' higher. One should get cautious whenever that talk starts hitting the financial news. Looking at some overbought/oversold indicators, such as the Put/Call Equity Only Ratio...it's now at 6 year lows. The NYSE New Highs is almost at 600 a multi year high, the Volatility Index ($VIX) is at levels not seen since the market topped out in 2008. The S&P500 although having broken over the psychological 1200 level is only several points from the '08/'09 61.8% Fibonacci Retracement level as indicated in the chart below.
So what does all these boil down to?
Itz believes that over the next two weeks as earnings come out and as the FOMC meets on the 28th, the market will trend higher. But expects at least a 5% to 10% pullback in May. It would actually be a 'healthy' event and bring in more buyers. Stocks are not over valued, rather they are trading below the normal 16 p/e and Itz see the markets going higer by year end. However, near term one should be cautious and as stated in several posts this month, remain 'hedged' by either selling covered calls, purchasing puts or using hedging ETF's such as SCO or DUG on the energy positions.
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