U.S. stocks locked into melt-up mode

This morning the Standard & Poor’s 500 stock index had tacked on another 0.56%, or 16.24 points, as of noon New York time, to move above 2900 for the first time to a new all-time high. The index is now up 3% in the last two weeks alone.

There’s good reason to look for a dip of some sort in the last half of this week as traders and investors take some profits–as they almost always do–ahead of the three-day Labor Day weekend. But the upward momentum in the U.S. mark is so strong right now that I’d anticipate that any dip will be quickly corrected when the market reopens on Tuesday.

We’ve got all the signs of a melt up that will continue for the first half of September.

Signs include big increases in target prices by Wall Street analysts. This morning at least two Wall Street firms have raised their targets for the index itself to 3000 by the end of the year. That would be a 3.5% gain from here and bring the index’s move higher for 2018 to 12%. Individual stocks are getting the same treatment. For example, Morgan Stanley raised its target price for Amazon (AMZNWealth Strength IndexAAPL is Extremely Up and trending Up) to $2500 from a prior $1850 a share this morning.

In the options markets traders are cutting their bearish bets and adding derivatives to increase their exposure to the long side. One thought that I’ve heard making the rounds this morning is advice to leverage to the long side in case the 2018 market delivers a big fourth quarter rally like the 6.1% gain in the fourth quarter of 2017. That positioning adds up to bet on a further breakout–from all time highs.

I’d note that the market will start to see third quarter earnings reports in early October and that earnings growth for the quarter is now projected to come in as good or better than in the June quarter.

The last time the market saw a melt up like this was back in January. Then U.S. stocks pushed into technically overbought territory before suffering a severe sell off. With today’s gains the market has moved just to the edge of overbought territory so we’re not back to the January scenario yet.

If you’ll remember back just a couple of weeks, you’ll recall a mid-August bout of selling that raised fears of a wider tumble.

August, September, and October are, historically, the highest volatility months of the market year.

I do think the market is headed higher from here in early September but I don’t feel this is the time to pile on risk or get complacent. Wall Street’s call for an additional 3.5% move higher from here in 2018 isn’t all that attractive.