TAIL WIND HEAD WINS

The measures of supply and demand control more of the direction of stocks then public opinion or fundamentals.

During the recent rally highs it has been accompanied by new rally highs in the advance decline line, and a new spike in the new highs indicator. Small caps and financials have led the way. What has been LAGGING entire rally has been the 30 day up and down volume, peaking just ONE MONTH after rally began......but up til now this has had NO effect on price action. We continue to reside in overbought conditions suggesting a reasonable chance for a correction, none which suggest primary uptrend would suddenly come to an end.

But we do have several major head and tail winds to consider going forward.


The VIX continues to evaporate down to the 16 level, not too many seem to need to protect their longs, or worried about the uptrend ending anytime soon. A LOW VIX may signal complacency but a falling trend = rising prices. A HIGH VIX signals extreme fear and = selling and a rising VIX will = lower prices....it peaked long ago.

If housing is a canary in the economic coal mine, it has been residing at levels near unsustainable to the downside, has the market recovered because at least for now it signals not so much recovery but the worst has surely passed? SHorts have covered tons of positions in the market and home builders.....and they have not gone belly up in general.

Into 2011 we have the last of the major mortgage resets....ALT A and Option adjustable....is this priced in? everyone knows this......aren't we near both a peak in those losing their jobs and houses available for foreclosure?....if so price pressure will ease.

A bottom in home sales and demand etc does not mean housing begins huge recovery but surely we are at or near a bottom.....has the market priced that in during this rally?

Local governments suffer from declining tax revenues....and continue to cut headcounts.

Because yield has been manipulated and is hard to find, HIGH YIELD (also known as JUNK BONDS) Bond issuance has surged.....partly due to confidence?

Mutual fund cash ratios FEED STOCK BUYING, FEED RALLIES, but cash ratios have just hit NEW ALL TIME LOWS!!!

Lots of money resided in bond funds, WHY hasn't that money come out into stocks? WILL IT? WHAT WILL FEED THE RALLY GOING FORWARD?

Unless a reversal of supply and demand occurs, I can see why many call for many more months of stock market price appreciation, maybe it sees an improving job environment, maybe it sees nowhere else to put money for gains.........other measures that point to seeds being planted do not point to a BEDROCK being built for the economy specifically bank loan contraction and velocity of money.

I pray the rally is NO MIRAGE, but while we may have drug ourselves out of one dark hole, how we did it may throw into another one.....gov debt and deficits......
manipulation of money and interest rates usually builds an inbalance somewhere and blows a bubble which invariably will burst, the next one could be a doozy

Longer term consideration is in the PAST BEAR MARKETS have neded with S and P 500 DIVIDEND YIELD NEAR 6% and single digit PE ratios...as WAS the case near 1982 bottom....bargains of lifetime.....SPX DIVIDEND RATIO NOW? 1.9% what was the yield at BUBBLE BREWING 2000 top? 3% food for thought.

If the stock market is RIGHT, WHY THEN IS THE FED HOLDING FUNDS RATE AT ZERO? ISN'T FED POLICY RESPONSABLE FOR THE MKT RALLY?

Duratek