S&P 500 makes 39th record high in 2013

By Danny Riley

Yesterday the S&P (^GSPC:SNP) made its 39th new high for the year and hit the most daily records since 1998. Low interest rates and the Fed’s unending stimulus continues to supercharge the S&P on the upside. With the MOC (market on close) selling going into its third week and just 15 trading days left in the year, many traders are questioning how much further the record run can go in 2013.

S&P 2000

We said a few weeks ago that when everyone started talking S&P 2000  it was probably time for a pullback. We were right. No, the S&P is not going to 2000 this year, and it’s unlikely that it will see 1900, but that is not going to take away from its historical run. According to Bloomberg and Birinyi Associates Inc., the 57-month bull market run is nine months longer than the average since WWII. The record run has added $13 trillion in U.S. stock market cap since it began in March 2009.

MOC selling

Despite the $8 billion sold on the closes over the last 11 trading days the S&P is still going up. Almost every day the NYSE trades 200 to 250 million shares on the close, and recently most of that has been selling. Historically, December is a good month for stocks, but is all the MOC selling a warning of things to come? We don’t think so but don’t want to forget about it, either. One new pattern that has been showing up is how the S&P trades “weakish” before and just after the cash close but rallies after 3:00. We think it’s all ETF selling going into the close and after the selling is done the buyers step right back into the S&P. Definitely an opportunity to fade the MiM/MOC has been showing up.

Going with the flow

The stock market rally of 2013 has been all about going with the flow. Last week’s -0.10% decline in the S&P was the first weekly down close since October. As of yesterday’s close the S&P is up 27% and up 167% since making its March 2009 low. We believe we have done our best to stay in the bull camp this year and we have avoided the pitfalls of many false starts.

The Asian markets closed mostly lower and in Europe 8 out of 12 markets are now trading lower. Today’s economic calendar starts out with the NFIB Small Business Optimism Index, Redbook, JOLTS, wholesale trade, 3-yr note auction and earnings from AutoZone [AZO] and H&R Block [HRB]. Yesterday both James Bullard and Dallas Fed President Richard Fisher suggested it’s time to taper, but the S&P barely budged. We think the S&P is going to continue to make new highs but next week’s final two-day FOMC meeting is going to be a different story.

Our view

We seen no reason for the S&P to do anything other than what it’s doing — sell off a little and rally. Yesterday the S&P took out its all-time contract high set on Nov. 27. This week the roll begins; the March contract will  go front month on Thursday. The roll doesn’t really mean much anymore but it does take away from the outright trading. Our view is unchanged: You can sell the early rally and buy weakness or you can just go with the flow and buy weakness. We have 1818-1820 as our next upside objective.