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Bubble Risk With New Highs for Dow Industrials, Transports, S&P

NEW YORK (TheStreet) -- The major U.S. equity averages sustained a strong rally on Thursday as the European Central Bank eased monetary policy. The rally continues this morning on a solid jobs report for May.

As of 10 a.m., the Dow Industrial Average (DIA), S&P 500 (SPY) and Dow Transports (^DJT) set all-time intraday highs at 16,891.40, 1,946.25, 8,167.06, respectively.

While not among the five major averages, the Nasdaq 100 (QQQ) and PHLX Semiconductor Index (SOXX) set multiyear intraday highs as of 10 a.m., at 3,793.19 and 617.09, respectively.

The Nasdaq remains below its multiyear intraday high at 4,371.71 set on March 7, with the Russell 2000 (IWM) below its all-time intraday high at 1,212.82 set on March 4. The main reasons these indices are lagging are the elevated price-to-earnings ratios for Internet stocks on the Nasdaq and small caps in the Russell 2000.

On Thursday, we profiled the 24 semiconductor stocks in "Letting the Chips (Stocks) Fall Where They May: A Mixed Bag." The SOX is the best performer year to date, with a gain of 15%.

Overlooked by investors is the year-to-date performance of the Dow Utility Average (^DJU), which set an all-time intraday high at 558.29 on April 30, and is the second best performer YTD with a gain of 12%.

As 2014 began, we wrote "Stocks Begin 2014 With Inflating Bubbles." The bubble atmosphere continues, but it's been an environment where many stock-specific bubbles have popped, while many stocks traded to new highs.

Bubbles for the major averages have not yet popped, but that risk remains.

As the year began, I described my value levels and risky levels for the major equities as a tangled bowl of spaghetti. Today that remains the case. But we are only three weeks away from having new monthly, quarterly and semiannual levels from my proprietary analytics.

One of my predictions for 2014 was that the five major averages would test their 200-day simple moving averages at some point this year. In the first half of the year, only Dow Industrials and the Russell 2000 followed this script.

Since the beginning of the year we showed semiannual value levels are 3,930 and 3,920 on the Nasdaq, and a semiannual risky level at 16,860 on Dow Industrials, which is now a pivot. The year-to-date intraday low for the Nasdaq was 3,946 on April 15.

Given the new highs that the Dow Industrials set this morning, this range has now been violated -- to the upside.

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