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 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 , 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.

This also means that the next major level is a quarterly pivot on the Russell 2000 at 1,169.22.

The Dow Industrial Average (16,891.40) has a positive but overbought weekly chart, with its five-week modified moving average at 16,562. Before setting its new all-time high this morning, the average was up just 1.8% year to date as of Thursday's close. The semiannual risky level is 16,860, with this month's risky level at 17,471. Expect the second half of 2014 to begin with new monthly, quarterly and semiannual risky level, with my annual value levels at 14,835 and 13,467.

The S&P 500 - (1,946.25) has a positive but overbought weekly chart, with its five-week MMA at 1,893.64. This month's risky level is 2,020.7. Expect the second half to begin with new monthly, quarterly and semiannual risky levels with annual value levels still at 1,539.1 and 1,442.1.

The Nasdaq - (4,296.23) has a positive weekly chart with its five-week MMA at 4,180.05. This month's risky level is 4,532. Expect the second half to begin with monthly, quarterly and semiannual risky levels, with annual value levels still at 3,471 and 3,063.

The Dow Transportation Average - (8,167.06) has a positive but overbought weekly chart, with its five-week MMA at 7,851.84. We could have quarterly and semiannual pivots with a monthly risky level as the second half begins, but annual value levels will remain at 6,249 and 5,935. .

Russell 2000 - (1,161.00) has a positive weekly chart with its five-week MMA at 1,134.32. This index is the biggest laggard, down 0.8% year to date. This index is between semiannual and quarterly pivots at 1,133.29, 1,130.79 and 1,169.22. It appears that the second half of 2014 will begin with monthly, quarterly and semiannual risky levels, with the annual value levels still at 966.72 and 879.39.

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At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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