Rally’s Steroid Pills and Hurdles

Let’s Start with the Pills:

Given a good technical test of the 50 day moving average, a surprise profit announcement from Alcoa, a good jobs report from Australia leading to a continued bashing of the dollar, we are once again poised to head up one leg higher. The dollar is making a bee line for the 76 mark and could break it as soon as tonight. If it does, expect another wave of selling of the dollar and a continued build up on the short side while the markets zoom higher.

Now the Hurdles:

Not many at this point considering that it’s out of the fundamentals hands and instead in the hands of a falling dollar. Very important levels on the S&P, 1067-1073 level (this is the current top); followed shortly thereafter by 1075 level (this is the trendline of the entire bear market); after that, a date with 1125 (the 50% fibonacci line from the top to the bottom; 23 on the VIX (this level has been holding despite 2 visits: a third successful bounce off would once again be cause for concern); 76 (dollar low thus far) after that 74 and after that, 71, and after that, you are staring into an abyss that is potentially more serious than what the markets were looking at in March.

As far as fundamentals are concerned, copper continues to look like it’s rolling over and this is even with the falling dollar. Shanghai, Japan, and the Kospi are also showing signs of rolling over. A melting dollar is causing havoc on exporters around the world. Consumer credit continues to shrink. (On the bright side, it looks like sales are starting to firm up a little and mortgage applications came in strong — time to start working down that inventory now), though this doesn’t really show the V-shaped recovery that the markets have priced in.

Remember, it’s not just a weak recovery, but a V shaped recovery. So far there is nothing in the data to where this sustainable demand will come from (aside from the gov’t in the short to medium term). So on that note, the market is on borrowed time, and the higher it goes, the more it will hurt later (occurring Q4-Q2 ’10 if not sooner).

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