If you’ve followed my blog, you can see I have not really changed my opinion on the Stock Indexes. I started trading them actively in 1998 in the Dow Jones Pit and have been through a lot of different markets. I traded through the Dot com bubble, The 911 attack, and I watched in 2009 as the Dow dropped from 14300 to 6500 and the S&P traded to its low in the futures of 666.
So I base my opinion on that experience. I also should tell you that I graduated from Colgate University in 1988, just 6 months after the 87 crash when I had friends and recent grads advising me that the economy was toast and not to get into investments or trading EVER.
With that as a back ground, you can take my opinion with that in mind.
Based on the 30% rally in 2013 and the repeated attempts of Pros and non-pros alike to preach for the 10% correction or, in other cases, a repeat of 1929, I think in reality, we haven’t seen the highs yet.
A lot of $ is still on the sidelines. One out of 3 Americans do not own stock much less a mutual fund, out side of their IRA . Since no one trades their IRA’s (ok, maybe 5 to 10% trade their IRA’s) I think the majority of the money movement is shepherded by MBA’s and the like with big 10 or Ivy League Math, Engineering and Statistical back ground. These are brilliant women and men. However, they all think alike because they are human beings.
They get paid to own stocks and put $ into the stock market. Those are the mutual fund mangers.
The Hedge fund guys are a different breed, because they can go short legally.
This is different than the mutual fund managers that can only move to cash when they are worried about a correction.
The problem is , very often if they move to cash and the market rallies, if that happens too many times they miss the rally and if that happens too many times the fund under performs the market and then they are looking for a new job.
Ok, based on all that my opinion is that there is still room to go higher in these stock indexes. Could we have a 10 or 20% correction? absolutely. But you could lose a ton of $ trying to pick that top.
So far this year, we’ve had two mini-corrections. One in February had the bears out calling for14500 Dow and sub 1700 S&P).
Low and behold the market spun around and shook all those longs out.
I believe you will see that repeatedly in for the rest of the year.
June July Aug might bring a correction, but as long as the sentiment remains so negative and in utter dis belief, then I see the market continuing to climb a wall of worry.
Upside targets will be round numbers 1900 in the S&P and then the holy grail at 2000. 1700 in the Dow and then the mythical 20,000.
I see 2000 in the S&P and 20,000 in the Dow as ultimate upside targets because of the psychological attraction of those round numbers.
Also , if you take the low 6500 in the Dow, that would be a 13,500 point rally, but more importantly that would be a triple in value from the 2009 panic lows.
for the S&P 2000 is a big mental number, but it would be a 1334. That would be a triple as well.
In my opinion that type of headline on Time, Newsweek, Good Morning America, etc would be the ultimate excruciating reality check to every one who has been bearish the US and Bearish the US market for the last 6 years.
Every one who didn’t own stocks would then feel compelled or shamed into buying; That wave of buying will be used by the existing longs to take profits, and we will THEN be set up for another round of pain.
Then I can embrace the “big correction” crowd.
The nice thing, is this is my opinion. Six months or a year from now we’ll see how it all plays out, but for now, I’d protect long positions in the Stock Market with Put options only. They are your insurance policy. Since no one REALLY TRULY knows when the air will be let out of this market, I believe that is the best strategy for now.