Markets Shift to Overdrive

By Greg Guenthner, Daily Reckoning May 15, 2013, 11:31 AM 

Put down that jelly donut for a second…

Do you see what’s happening here? This market is in overdrive. The melt-up has been relentless, with the broad market gaining more than 1% yesterday. Nearly 200 domestically traded stocks finished the day up 5% or more.

I told you it would be unwise to fight this tape. Short squeezes are fueling some of the bigger moves higher. Anyone betting against stocks right now is losing his lunch.

Yet while stocks are moving higher, experts still don’t see any need to be overweight equities for some reason. The average strategist recommends a stock allocation at less than 50%, according to Bloomberg. The equity risk premium (a favorite metric of the bulls) is at record highs. Stocks are the glaringly obvious investment choice right now. It’s time for everyone to start rethinking their plans…

Back in December, the experts’ average year-end S&P target was 1,490. It’s May and the S&P 500 is cracking 1,650—and that shouldn’t surprise you.

What could possibly happen now? Let’s say you have two choices: S&P 1,900 by the end of the year, or S&P 1,200. That’s it—nothing in between. If you put a gun to my head, I’d pick the 1,900 target 10 times out of 10. That might seem outrageous to you today—but I bet you’d have the same reaction if I went back in time to your New Year’s party and told you the S&P would top 1,650 before June.

Do not underestimate the power of this market rally. Safe stocks paved the way for gains earlier this year. That’s now shifting to cyclical names. Energy stocks started breaking out yesterday. Smaller stocks are attracting attention. Semiconductors and biotechs are pushing the market higher this month. If you’re nimble, you should have no problem riding these names as they begin to lead the market higher this summer…

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