Market Preview: Full Speed Ahead

NEW YORK ( TheStreet) -- The bulls just keep getting more and more bullish.

As of Friday's close at 1369.63, the S&P 500 has surged 8.9% year to date, and it sits a little more than 14% below an all-time closing high of 1565.15 in October 2007. Retail investors would likely be ecstatic if the index made it that far, but Birinyi Associates is setting its sights even higher.

The independent investment firm said late this week it thinks the S&P 500 could reach 1700 this year, which would be a 19.4% advance from here.

"We have been pleasantly surprised by the gain year-to-date," Birinyi wrote. "Even more so by the structure and dynamic of the rally, as well as the fundamentals and sentiment now present. As a result, we are more optimistic than we were two months ago."

What's behind the firm's increased conviction? Well, for one, Birinyi is encouraged by the current rally's similarity to previous bull markets, especially 1982 and 1990, which both took off at this point in their histories.

"If -- if -- the market is right and the economy surprises us on the upside, gains similar to 1982 and 1990 are a distinct possibility and one which no one has entertained," Birinyi said. "It has been suggested, that the 2012 rally is reminiscent of 2011 and this too shall pass. Perhaps but we are impressed by the nature of the rally as it has been led by economically sensitive stocks and groups."

The firm went on to note the strength of the energy equipment, building products, construction materials, machinery and semiconductor sectors, listing individual names like Caterpillar ( CAT), up 24% year to date; Cummins ( CMI), rising 36%; General Motors ( GM), surging 30.5%; Dow Chemical ( DOW), gaining 19%; and Salesforce.com ( CRM), soaring 42%.

Birinyi also pointed out the sluggishness in defensive sectors like consumer staples and pharmaceuticals bodes well for the rest of 2012, citing the lack of participation from stalwarts like Coca-Cola ( KO), down 1.1% year to date; Procter & Gamble ( PG), off 0.6%; McDonalds ( MCD), slipping 0.8%; Pfizer ( PFE), sliding 1.1%; and Johnson & Johnson ( JNJ), down 1.2%.

If these names start to pick up the slack from the year-to-date market leaders, which include the likes of Bank of America ( BAC), Netflix ( NFLX) and Sears Holdings ( SHLD), that should provide the necessary oomph for the market to move another leg higher.

The firm has also been impressed by how stocks have dealt with the bad news that has come down this year, holding onto gains even when the headlines turn scary.

"We have been surprised by the internal strength of the market and especially compared to just two months ago," Birinyi said. "On January 27, Spain and Italy were among the nations downgraded by Fitch. The market neither broke, bent nor flinched. Earlier in the month, France experienced the same fate which again was largely ignored or anticipated."

On top of all that, Birinyi just doesn't find the naysayers all that convincing.

"The bearish argument is tired, redundant and weak," the firm said. "Amazingly we still read that the lack of volume is a concern and that on a trailing basis stocks are expensive."

TrimTabs, though, offered up one bearish argument last week that likely resonates with retail investors, saying rising gas prices are at least partly attributable to the Federal Reserve's actions and that the increase does substantially offset some favorable developments, like the extension of the payroll tax holiday.

"Gasoline prices rose as much as 80 cents per gallon in the past two months due to the Federal Reserve's easy money policies and rising tensions with Iran," the firm said. "We estimate that the increase is equivalent to an $80 billion annual tax on consumption, which threatens to negate about 70% of the payroll tax cut."

Iran's threats to block the Strait of Hormuz contributes a fear premium of $8 to $10 per barrel of oil, estimates TrimTabs, which notes there's a negative correlation between crude prices and the dollar. The firm also thinks quantitative easing has increased commodity speculation and led to more pain on Main Street.

"Extremely low dictated interest rates and unprecedented central bank money printing have unleashed a flood of liquidity that is searching for a positive real yield," TrimTabs said. "Some of this liquidity is flowing into speculative activities in the energy markets, which is pushing fuel prices higher. While the global money printing party is rewarding speculators, it is wrecking the finances of wage earners and savers."

It's not hard to run down a few reasons why stocks can be viewed as overdue for a breather, and even the notoriously bullish analysts on the sell side are showing incremental signs of nervousness, but conviction that equities have formed a solid base to stage a further advance from here continues to build. The February jobs report this coming Friday is already being viewed as a big test, and if it validates the view that the economic recovery is picking up steam, it could be full speed ahead for the bulls.

One stock that's been left out of this year's rally has been Nutrisystem ( NTRI), which is down 18.3% in the past 52 weeks, including a 10%-plus drop in 2012. The weight management company is slated to report its fiscal fourth-quarter results after Monday's closing bell, and the average estimate of analysts polled by Thomson Reuters is for a loss of 2 cents a share on revenue of $64.4 million.

Nutrisystem is coming off a big miss in its fiscal third quarter when it posted a profit of 21 cents a share on revenue of $85.6 million vs. Wall Street's consensus estimate for earnings of 24 cents a share on revenue of $103.9 million.

At the time, the company attributed the weakness on the top line to the volatility in the stock market over the summer, which hurt consumer confidence and consequently demand for its products. It also noted plans to bring in new brand spokespeople ahead of the 2012 dieting season following Jan. 1, eventually inking deals with Terry Bradshaw and Janet Jackson.

Macro conditions had improved somewhat by the time the company's fourth quarter ended in December, but this is typically the weakest three-month stretch for the business, so the focus on Monday will be on guidance and color about how business has been since the calendar turned.

Last Thursday, the company announced the hiring of Dianne Jacobs as senior vice president and general manager of retail to lead the push to get Nutrisystem products onto grocery store shelves.

Four of the five analysts that cover Nutrisystem have remained bullish with ratings of either strong buy (3) or buy (1), and the 12-month median price target at $17, implying potential upside of more than 50% from Friday's close at $11.20.

Auriga USA has a buy rating and $17 price target on the stock, and its attention will be on the future come Monday.

"While we expect the quarter to be weaker than the prior year, we anticipate a subpar 4Q is already priced into the shares as management provided cautious guidance during 3Q," said the firm, which is looking for breakeven results on revenue of $75 million.

The importance of what kind of start the company is off to this year is hard to overstate, but Auriga believes sales are up year-over-year and that it may be stealing market share from Weight Watchers International ( WTW).

"Typically, the first quarter creates a foundation for the rest of the year as new customers may stay on the program for multiple months," the firm said. "We believe the company's new menu items and promotions have improved upon last year's performance, and expect monthly average prices to be above last year. We also believe that the decline in Weight Watcher's attendance in 1Q12 compared to the surge it experienced last year could be beneficial for Nutrisystem as weight loss customers may have shifted to the 'Success' program."

Auriga also cited positive reviews of new menu items and increased Internet traffic related to Nutrisystem's 40%/40-year anniversary promotion as reasons for its bullishness.

Check out TheStreet's quote page for Nutrisystem for year-to-date share performance, analyst ratings, earnings estimates and much more.

Monday's other reporters include AGCO Corp. ( AG), Casey's General Stores ( CASY), CompuCredit ( CCRT), Petrohawk Energy ( HK), and Verifone Systems ( PAY).

The economic calendar on Monday features factory orders for January at 10 a.m. EST; consensus estimate is for a decline of 1.9%; and the Institute of Supply Management's services index for February at 10 a.m. ET; consensus estimate at 56.0, a slight decline from the previous reading at 56.8.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Opinion

Red Hat CFO Tells TheStreet: Tech Trends Are Still in Our Favor

Red Hat CFO Tells TheStreet: Tech Trends Are Still in Our Favor

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

Wednesday Wrap-Up: GE and Facebook

Wednesday Wrap-Up: GE and Facebook