This past weekend Barron’s had two articles discussing raised bullish price targets: “Will a Stock “Melt-Up” Really Solidify?” and “Lifting the Odds for a Market Melt-Up”. This is just a sample of many of the new articles that the media is openly discussing. There are a growing number of analysts that are raising targets for next year to the 2000 level on the S&P500. In spite of my repeated bearish concerns the market still continues to relentlessly advance.
So can we hit 2000 on the S&P500? The answer has to be yes because in the markets anything can happen, but the more important question is about how realistic or probable it is for it to happen. At the start of the year almost every bullish analyst on the street set targets of 1650-1750 on the upside and to date they have been correct. The problem is that bullish analysts cannot have targets that are below the current levels, which means the bullish analysts must all raise their targets even higher to justify holding their investments. This does not necessarily always lead to a new fairy tale advance.
No better example of that are Apple shares back in 2012. In January 2012 Apple shares started the year around $400.00 a share. Most bullish analysts had set price targets in the $600-$700 range which represented a very bullish 50-75% advance. To everyone’s delight the stock rocketed to $640.00 in just 4 months. Over the subsequent 6 months every analyst rushed to set $800, $900 and $1,000 price targets for the stock. To feed everyone’s euphoria, Apple proceeded to rise to $700.00 a share and everyone was certain that everything was going to be blue skies from there. Yet it was from that moment that Apple began a significant bear market decline that seen it wipe out all gains back to $400.00 a share over the subsequent 9 months.
With that in consideration, recognize that the S&P500 could advance to 2000 like all the super bull analysts are expecting but if Apple has any less to teach, it is that the market can only be at its highest levels when everyone is most bullish. We, on the other hand, will respect the trend but we will unmistakably remain skeptical of its sustainability and cautious of the risk of a market correction when everyone least expects it.
Levels to watch S&P500 December 2013 Futures:
The S&P 500 has now tested the 1770.00-1775.00 area three times and is attempting to retest it again today. This week’s trend will be decided off this level. If the bulls can breakout the market to new highs, there are measured moves toward 1800.00 on the upside which could see bullishness into Friday’s November options expiration. Alternatively, if the bulls fail to make higher highs, a reversal and retest of the 1735.00-1740.00 would be possible. If at any point the market has a legitimate breakdown below 1735.00, it would open the window for the next bigger picture correction or crash. We will remain neutral for a few more trading sessions to see if the market will show its hand for the next market move.
Ceresna Market Breadth Index: Sell Signal Alert
52 Week Mean Price of S&P500: 1587 (183 points below market) (201 point peak 2 weeks ago)
Volatility Index: 12.95% (Already near year highs)
Number of Stocks Making 52 Week Highs: 226 (Year high 894 Jan 2nd)
Number of Stocks Making 52 Week Lows: 30 (Year high 504 Jun 24th)
Number of Stocks Above 50 Day Moving Average: 61.11% (Year high 89.54% Jan 22nd)