What a Week: Shifting the Paradigm

Proponents of Dow Theory have been waiting for the Transports to confirm the Dow Industrials' new highs in since the latter set an all-time high in October. Now that the Transports have reached a new peak, some contrarians might wonder if it's a sign of the best news coming at a market top.

Indeed, the week also included a hefty new issues calendar during which eight initial public offerings priced, according to Briefing.com. In other frothy news, Japan's benchmark index, the Nikkei 225, reached a new 52-week closing high Friday as well.

"One concern is that there is more optimism about the stock market than there was one or two years ago," says Paulsen. "You wonder if this entices more cash into the game." He adds that a selloff of 2% would scare those late-to-the-party investors away, providing another nice buying opportunity.

Dancing to the Data

The data surrounding the FOMC statement on Wednesday included the government's first estimate of fourth-quarter GDP growth at 3.5%. The economy roared with a boost from exports and retail spending in the face of a continued drag from the housing market. Housing activity declined 19.2% -- the weakest quarterly showing since 1991.

The Fed, which had focused on housing as a key concern through December, apparently came around to many traders' point of view that the worst is behind us, a view supported by Standard Pacific's (SPF Quote) upbeat outlook Friday. Reflecting the recent rise in home sales and declining inventories, the Fed statement read: "Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."