What makes me so sure that we aren’t done with this rally? First, oil’s still going lower, even as opec tries to stem the decline. Long term, we could head higher again, but right now the world’s awash with oil pumped to take advantage of high prices. But there’s no room to store it, so the price comes down to move it. Second, housing’s still trending down, chilling the Fed even as consumers are feeling flush because of the relative cheapness of gas. Companies are still buying back stock, even post-12,000, as there’s not much else they can do with the cash. We also have more mergers and acquisitions now than ever before, and private-equity firms buying companies at an unbelievable pace. That takes out even more stock. Finally, the hedge funds have just begun their capitulation. We just saw the published short-interest figure numbers (a count of all the shares being shorted), and they remain at all-time highs. There’s more to be bought, and it will be bought higher.
The cash trickling into the market could turn into a torrent now that we’ve taken out the 12,000 benchmark.
Several key stocks in the Dow now have open-field running, including Altria, which is splitting into three companies; Hewlett-Packard, which is killing Dell; Boeing, which is winning by default because Airbus can’t make the darned A380 superjumbo jet; and AIG, which is now finishing a thorough Spitzer-izing that cleaned out top-level management and is ready to roll. (Not all Dow stocks are poised to rise. I’d steer clear of Alcoa, for instance, because it’s so poorly run. Management has consistently missed its earnings targets, even though the business fundamentals have looked great.) As the market’s gale-force momentum continues to build, the public, which has just started embracing this rally, will be sure to take stock prices even higher. By my count, with just a small continuation of the current trends, I can see the headline this time next year: DOW BREAKS 13,000.