Of late, the sentiment regarding the stock market's ostensible strength hasn't been entirely consistent.
In the media and across social networks, the S&P 500's push through 1900 has brought about a truly wild level of euphoria. Then, among the traders I talk to, I hear a tone of guarded optimism that matches a bullish book of business. My clients, meanwhile, are unwilling either to go contrarian or to bet against the rally, because the market is being fueled by powerful elements that only the sophisticated sort understand (Federal Reserve, high-frequency trading). Those powerful elements persist in doing their jobs very, very well.
Finally there are the stock strategists at the major brokerage firms. Armed with their self-proclaimed sexy economic models and direct lines to heavy hitters around the world, brokerage-firm strategists at a firm like Goldman Sachs continue to talk about "new legs" to the "bull run," underlined with convincing new and old data.
Bottom line here: Good luck shorting the market, or trying to be the next great overpaid pundit who predicts a market top. The market is determined to maintain its bid until something fundamental happens to turn it. No one can know what that fundamental development will be, although the rotation into large-caps hints that Mr. Market is trying to position for it ahead of time.
Believe me, the latest round of corporate earnings has fueled the optimism. It's a positive when non-hyped, easy-to-understand Warren Buffett-type names soundly beat guidance. When they do so, their reiterated full-year outlooks are deemed conservative and the stock creeps higher on that basis. Even Ralph Lauren (RL), with its relative disappointing quarter and forecast, discussed a resurgent eurozone -- something that is unlikely to have been properly factored into its stock price.
Speaking of which, keep this in mind: European stocks are trading around six-year highs.
All of that said, below are two charts that will only confuse your stance on the rally you may hold so dear.
First, take a look at the Russell 2000, whose plunge has generated a decent bit of ink in the past two weeks -- and rightly so. The near-term technical outlook for the Russell 2000 is unfortunate, according to Bank of America Merrill Lynch. This, in turn, should ratchet up concerns among the classically trained stock folks that the U.S. economy is headed for a negative surprise this summer.
However, check out those railroad stocks. Below is CSX (CSX) in blue, Union Pacific (UNP) in red and Norfolk Southern (NSC) in dark green. (The Dow is in brown, the Nasdaq is in light green and the S&P is in aqua.)
Railroads continue to act strongly, unlike the move in the Russell 2000. This suggest both volume and pricing momentum from late in the first quarter has been maintained into the second quarter. So I ask: Whom do you believe?