Monday, June 1, 2009

Stocks Surge Again on Hope the Worst Is Behind Us

Stocks soared Monday morning, continuing the powerful rally off the March lows. The advance is likely to continue and take the S&P as high as 1100 by year-end, says Jon Najarian, co-founder of OptionMonster.com. Such a move would translate to a Dow above 10,000 - and probably well above after Monday's removal of GM and Citigroup and insertion of Cisco and Travelers into the price-weighted index.

In addition to technical factors such as the changes to the Dow and the S&P having eclipsed its 200-day moving average on Friday, stocks were rallying as continued upward momentum has investors previously on the sidelines scrambling to get long.

More fundamentally, the market is responding to a series of better-than-expected economic reports, including U.S. construction spending, the ISM manufacturing index, and purchasing managers surveys in China and Europe.

But rather than fundamentals, Najarian believes the market is rallying "on hope" and says rising oil prices represents the greatest near-term threat to any nascent recovery. Friday's jobs report is also a potential obstacle to further gains, he says. Still, the trader doesn't recommend stepping in front of the proverbial freight train, which was picking up speed Monday morning.

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