Last week stocks retreated another 2%, when the inflation figures came out a little higher than expected, raising fears that the Fed won’t stop raising interest rates. But don’t panic. We don’t think the market has peaked.

Two weeks ago, almost all the averages made new highs – transportation, financials, unweighted averages, everything. And while that sounds “peaky” to the untrained, we cannot recall an instance where such a convergence has coincided with a major market peak. A setback perhaps is in order – 6% or 7% -- but not likely a peak.

This means that while stocks over the next week or two could fall another few percent, there should be further gains before long. If we had to suggest a likely scenario (and you must remember that the most likely scenarios seldom unfold exactly as expected), we could easily envision the Dow making an all-time high in the near future – somewhere in the neighborhood of 12,000.

An all-time high in the Dow could very well be followed by a major correction, along the lines of 15% to 20%. But that’s down the road. For the short term the technical indicators are simply too strong to be consistent with a major decline. Sure there could be a bit more weakness but over the next few months the risk reward ratio is dramatically in favor of the bulls.Read more...