Nov 11, 2010

Short-term: 3 yellow, 1 red – still indicating overbought
Int-term: 2 green, 2 yellow – uptrend still in place
Stock targets: 86% swimming, 11% neutral, 3% sinking

The market is still not giving any indications of topping out or deteriorating underneath. It is as one-sidedly bullish as it can possibly be. There may not be any fundamental reason for prices to be rising here (other than the Fed’s monetization of debt which is designed to create a bubble in asset prices) but that does not mean they will stop rising.

The key thing to watch remains the dollar. That has driven this rally and a dollar reversal is the most likely event that will end it. Politically, there are a lot of reasons why there may be a coordinated attempt to force the dollar up and foreign central banks are the only ones who can fight the Fed. But even there, the real economic problem re different currencies is China’s link to the dollar – not the Fed’s actions. China is the trade surplus country whose currency should be appreciating because of that surplus — and it is thus the country that is truly competitively devaluing its currency here and creating both internal inflation and external protectionist pressures in the process. One of the most difficult economic things to see re currencies now is the broader currency “zones”. And the dollar zone is, for better or worse, inextricably tying together the largest deficit country with the largest surplus country in a way that makes it impossible for the US alone to resolve its problems.