- The Dow, S&P 500, Russell 2000 and Nasdaq all closed at record highs Wednesday, a sign to some technical analysts of an extended rally.
- Analysts see earnings as a catalyst for now, with another possible boost coming from Washington if Congress begins to work on tax reform in September.
- One technician says the market is set up for a near term gain of 3 to 5 percent.
Large caps, small caps, tech and energy stocks all joined in a rally Wednesday that took major market indices to record highs—a positive sign for even more gains.
Lagging oil prices, viewed as a potential headwind for stocks, snapped higher Wednesday and have more room to run, technical strategists say.
While some investors might look at the concerted move to new highs as a sign of froth, technical strategists say the market set up is a positive and it may still have some way to go.
"That's a good sign," said Paul LaRosa, chief market technician at Maxim Group. "To me, this points to higher prices in the near-term, in the next few weeks. Whether that continues or not, we'll find out. My overall feelings are it's not going to lead to a sustained rally, but my feeling is we'll see prices go higher from here in the near term."
There are catalysts for more highs. "It's earnings season now, and then maybe we'll get tax reform," LaRosa said. The Dow rose 66 points to 21,640 Wednesday, while the was up 13 to 2,473, both record highs. The Russell 2000 rose nearly 1 percent to a new high of 1,441, and the Nasdaq was up 0.6 percent to a record 6,385.
All 11 major S&P sectors were in the green, led by energy's 1.4 percent gain, its best day since July 3. The S&P technology sector was at a 17-year high of 992, breaking for the first time the tech bubble high set on March 27, 2000.
"I would say we can see between a 3 and 5 percent rally from here," LaRosa said.
Scott Redler, partner with T3Live.com, said he was watching energy to see if it would help the market break out, and it didn't disappoint. West Texas Intermediate oil futures jumped 1.6 percent to a six-week high of $47.12 per barrel. Oil moved higher on drawdowns in U.S. oil and gasoline supplies, both positive for reducing crude supplies.
"The summer time rally might have just gotten new energy, and energy could be the focus," said Redler.
"The XLE, which was trapped in a downtrend, closed above the 50-day moving average," he said. The XLE is the Energy Select Sector SPDR Fund ETF. "Traders would love to see a follow through in energy. It does feel a bit different. If the energy names outperform and break this downtrend, it will also be a bit of a tail wind in the broader indexes…Today, oil and small caps helped power the move. Even if tech, which is a little overbought, takes a small breather, there seems to be other sectors that could help keep the rally alive."
The XLE was up 1.5 percent, and closed at 65.96, its first close above the 50-day, at 65.88, for the first time since January. Redler, who follows short-term technical trends said WTI could go as high as $50 or $51.
"It feels like the market is driven by a slowly growing economy and good earnings growth," said Art Hogan, chief market strategist at Wunderlich Securities. "What you've seen is crude is trading at a six-week high. That's constructive. The yield on the 10-year has ticked up. That's constructive. [House Speaker] Paul Ryan was talking about tax reform today…If you're looking for positives, some of the key factors have been established, whether it's yields on the 10-year or commodities prices."
Hogan said the earnings season has been more positive than negative even with some high profile misses. Qualcomm and American Express both fell after their reports late Wednesday. "I think with the focus being on earnings and not macro, it feels like we shifted to micro rather than macro and that micro is positive. The usual suspects disappointed. We had disappointing IBM revenue, Goldman Sachs missed on fixed income and commodities trading but low and behold Morgan Stanley came and blow the doors off," said Hogan.
For now the trend is higher, but he also sees some negatives. "People are nervous we haven't had a 5 percent correction since August [to Nov. 4]...There's only been six years out of the last 50 where we've gone a year without one," Hogan said. "Stocks are starting to get pricey, and it doesn't feel like we're ever going to get anything out of Washington. The good news is I think the market spent the entire second quarter taking out any assumptions we're going to get any progress on policy in 2017. I think that's why the market didn't have any reaction to the health care bill vote failing. At some point in time, the next hurdle is that something gets legislated, or we're relying on monetary policy lower for longer."
Earnings expected Thursday include Abbott Labs, Travelers, Union Pacific, Bank of NY Mellon, Blackstone, Polaris, Sherwin-Williams and Unilever. KeyCorp, Danaher and Check Point Software also report before the open.
Traders are also watching the European Central Bank which is not expected to move rates but could discuss its plan to taper back on asset purchases, or its quantitative easing program, later in the year. There are also jobless claims and the Philadelphia Fed manufacturing survey at 8:30 a.m. The leading index is at 10 a.m.