What a difference a week makes. This time last week stocks looked to be on pretty shaky ground. On Tuesday the market opened and the S&P 500 dropped to 1060 and a close below that level would have likely resulted in a retest of the lows around 1010. Small caps stocks, which had been trailing blue chips, were likewise precariously poised. But instead of dropping, stocks rallied from that intra-day low and we’ve tacked on more than 5 percent. And the small fry have climbed even more.

We’re still not happy with the light volume, but the participation has been broad based, which is very encouraging. As for where we go from here we may know definitively in short order. Stocks are coming into overhead resistance right now. If we can manage to close above 1120, we could easily tack on another 2 to 4 percent and perhaps more if the US dollar remains weak.

That said, we can’t get too excited about the market’s prospects given the poor economic backdrop and lackluster forward guidance we’re hearing from many companies. Most likely we’ll remain in a trading range, with downside risk outweighing upside potential.

Among the most intriguing economic indicators right now is Economic Cycle Research Institute’s (ECRI) Weekly Leading Indicator. The good folks at the ECRI remain bullish on the economy’s prospects, despite a -10.5 reading on its Leading Indicator. However, in its entire history, a period spanning 7 recessions, a -10 percent or worse reading from the indicator has invariably heralded a coming recession.Read more...