How far can this market go?

The market is super bullish and day after day, it is going up and up and now Dow Jones has broken out its all time high reached in 2007. Technically this is very important as it has entered a new bull territory. To further fuel this bullishness, the Dow Transportation has also catched up and reached its all time high. Based on the famous Dow Theory, when both Dow Jones Industrial and Dow Transportation go up, it is a confirmed uptrend and should last. As it is commonly said in the Street, DON'T FIGHT WITH FED. This is definitely a Fed engineered bull market with all the cheap money floating around. Regardless you like it or not, you have to accept the fact that this bull market will continue as long as the money printing by the Fed continues. This is likely a multi-year bull stock market which may reach to a level higher than everyone can imagine before it is finally over. The Fed's free money will drive everything crazy.

But the question is: will this uptrend simply go up without interruptions? I really don't believe so and I'm still thinking that some significant correction should come first before it can go much higher. Keep in mind that this bull market is not really supported by its fundamentals but more by the Fed policy. Overall, the market is already quite expensive. The following chart, from Morgan Stanley, offers some insight into just how broadly 'expensive' this market is. Over the past 13 years, there were only 2 times in the past that when more than 45% of stocks reached the expensiveness level we are seeing now, the market said "enough is enough" and just gave up. A huge free fall ensued each time. Will this time be different? Certainly it is possible with Fed's money behind but I'd be cautious before deciding to put more money into stocks.

If you don't want to miss any opportunity during this bull market, you may consider to buy the Dow Jones index ETF, DIA. If you do so, I'd suggest you keep a very tight stop loss in place and get out quickly if the trend suddenly turns even for a short term.  For myself, I'm not interested in stocks in general but I'm aggressively buying something now (a subject for the next blog).