Yes, This Bull Can Keep Running

Friday may have ended mixed, but it was also the last day of the strongest week of the year for the DJIA and the S&P 500, both up 2.4%. The reason for the weekly advance was primarily economic: Initial jobless claims were down, producer prices rose, consumer prices were up and manufacturing in March showed a big improvement.

At the close on Friday the DJIA was off 20 points, ending at 13,233. The S&P 500 rose 2 to 1,404. And the Nasdaq fell one point to 3,055. March options closed, and so volume was higher than normal with 1.6 billion shares traded on the NYSE and 812 million on the Nasdaq. Decliners were slightly ahead of advancers on both exchanges.

This weekend many financial publications led with a headline that questioned whether the stock market could continue at its current pace without a correction. With so much focus on that question, the answer is almost self-evident: Yes, it can continue at the current pace. And the reason is equally obvious: Many small investors have still not entered the market, encouraged to stay out by the timidity of the writers of these articles.

With gains this year of 8.3% for the DJIA, 11.7% for the S&P 500, and 17.3% For the Nasdaq, the stock market has leaped forward with the best performance in a decade.

Click to EnlargeHopefully, this past week will have been an eye-opener for the many who have so far resisted investing in good quality stocks. The last major resistance for the S&P 500 was the psychological line at 1,400, which was easily exceeded on Thursday.

And the 500 wasn’t the only index to blast through resistance: Even the Dow Jones Transportation Index, which thus far has been a drag on the broad market, sliced through its 50-day moving average and appears to be attacking the February high at 5,425. As noted last Friday, a new high in the Transports would satisfy the Dow theorists that a Dow bull market has finally been confirmed.

It bears repeating that in the art of technical analysis, price action always trumps all other technical indicators. Thus, the most important bullish events of last week are the piercing of one overhead price barrier after another. These barriers could not have been overcome without the orderly rotation of leadership — another characteristic of a powerful bull advance.

Rotation has been most apparent in the transportation and financial sectors as they joined the party with huge breakouts by individual stocks. The big advances had been made early this year in technology, retail �and consumer discretionary sectors. But now the laggards have come to life, too, and that’s where some of the best bargains are still waiting to be bought.

Tomorrow I’ll list some of my favorite stocks in the heretofore lagging sectors.