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MV Weather Report: Dow Erupts, Shoots Past 10,000


Rain or shine, we review the day's biggest stock stories.


Bust out the champagne, the DJIA hit 10,000! (At least, that's what the financial media wants you to do.)

The market shot up today on positive earnings news from Intel (INTC) and JPMorgan (JPM).

It was an across the board rally today as the S&P 500 closed higher by 1.75% to 1093 closing right on the high of the day and the new year-to-date high. As mentioned above the DJIA crossed the 10,000 level before closing at 10015, up 1.47%.

How important is DJIA 10k? To be honest, not important at all, it's more of a psychologically important level that financial TV gets excited about (did anyone see those hats?).

The important takeaway today was the S&P 500 broke through to new highs. Everyone has been calling for this rally to end but it just won't quit.

Back in September I wrote an article about how the rally is comparable to the rally in 2003. On today's Buzz & Banter, Tony Dwyer of FTN Midwest securities looked at the 2003 scenario using the VIX.

"This morning on Bloomberg Radio, I was asked about how low volatility is as measured by the CBOE Market Volatility Index (VIX). If you look at it year-to-date – the VIX is does appear too low (Chart 1). This is very similar to how it looked from 01/01/03 – 10/14/03 (Chart 2), which reinforces our view that the current environment is like 2003 on steroids. Even the temporary spikes in the fall of 2003 that was followed by a new low look very similar to the current YTD picture.

"Longer-term VIX Should Trend Toward Mid-Teens. Like everything else, the VIX moves in cycles. The first fear that causes it to jump is the fear of losing what you have. The second is the fear of not getting what you want. It appears we have yet to even enter that zone suggesting further upside over coming years. In the prior two cycles, the VIX spiked and was followed by a trend back toward the mid-teens (chart 3). In all three cases so far, that trend started with the peak and subsequent improvement in credit spreads.

"What Would Make Me Less Bullish? Short-term: Expectations of an imminent Fed rate hike or move to 1200+. Longer-term: Ultimately, absent a major geo-political event or another dislocation in the corporate credit market, we expect new all-time highs in the equity market before the bull has run its course. "

Click to enlarge

Tomorrow will be another big day, with Citigroup (C) and Goldman Sachs (GS) reporting earnings before the bell. Then after the bell it'll be Google's (GOOG) and IBM's (IBM) turn.

Traders will also be reacting to econ data with Initial Jobless Claims, Continuing Claims, Core CPI, and CPI due out at 8:30 and then the Philadelphia Fed at 10.

One final thing to watch for is the typical pattern over the course of this rally has been to shoot up to new highs, pullback, then move to new high's again. I'm sure a pullback will be coming soon, but it should be bought.

Have a great night!

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