Despite renewed worries about the European banking system, the Dow Industrials are within 15 points of their March 14 all-time high of 14,539.14. The Dow Transports, hurt by profit warnings from FedEx ($99; FDX) and Con-way ($36; CNW), are about 1% below their March 14 all-time high of 6,281.24.
With profit-warning season for the March quarter nearly here, the market's near-term reaction to earnings news could prove telling. Will investors lock up gains with across-the-board sells on any major disappointments, or will the fear of missing out on a rally limit the fallout? So far the answer to that question has been encouraging, as most transportation groups continue to trade near recent highs.
Still, a broader market pullback would not be surprising, as the averages have come a long way over the past four months. Indeed, a typical one-third to two-thirds retracement of the advance since mid-November would put the Industrials at 13,874 to 13,208 (down 5% to 9% from the March 14 high) and the Transports at 5,818 to 5,355 (down 7% to 15%).
Timing secondary corrections with precision is very difficult. But with the primary trend squarely in the bullish camp and valuations reasonable, we are inclined to view any pullback as a correction in an ongoing bull market.