Market Surges on Stress Tests

With an hour left in trading the news that JPMorgan Chase ($JPM) has passed the stress test and plans to hike its dividend and buy back shares sent the market soaring. Since that time we have found out all but 4 of the banks passed the stress tests. This sent the SPDR Financial ETF ($XLF) up 3.8% today to the best level since July 2011.

The news sent $JPM higher by 7% for the session. I am smiling as I type this as $JPM is one of the firms bigger positions. It is nice to see patience pay off and the gains begin to pile up. I expect this strength to carry over into tomorrow and could be enough to help the market continue its current bull market. The S&P 500 is now up 11% for the year.

With that being said, I do have a bit of caution for investors that are only now deciding it is time to get back into stocks. I do not want to say you are too late, but the reward-to-risk situation is not as attractive as it was three months ago. We have been doing some buying and selling since the year began to position for this rally. My prediction for the S&P 500 was in the 1500 to 1550 range for the mid-year high. Today the index closed at 1395, that leaves another 9% on the upside at the mid-range of the prediction.

The support for the index is about 5% below the current price and therefore the reward-to-risk is 9-to-5, not the ideal setup for getting back into the market. A pullback to the low to mid 1300's would be much more attractive for new money. We will continue to pick individual stocks/ETFs that offer better setups and could participate in a rally to 1550.

I will share one such ETF with you. The iShares Realty Majors Index ETF ($ICF) invests in a basket of REITs and broke out of a consolidation pattern today. There is strong support at the $74-$75 area and it closed today at $76.06. The dividend yield is 2.8%.