SPX Targeting 1375

US equity markets have continued to make higher weekly closing highs, climbing relentlessly in defiance of calls for a pullback or a resumption of the bear market. Treasuries broke down from a month long consolidation and resumed their downtrend as capital continued to exit the perceived safety of fixed income for risk assets. Gold appears to have completed a correction of its recent decline and may be set to join Treasuries in a downtrend as investors exit safe haven plays. The Japanese Yen may have finally made a significant, long term top (and a bottom for Dollar.Yen) and if it breaks out soon it may signify a resumption of the carry trade, which would mean that another major liquidity stream is coming online to power the stock market rally even higher. The US Dollar Index may have found a bottom and there is some potential that it may climb together with US stocks as investment demand for big cap, developed nation companies appears to be the emerging story. There are some technical considerations which suggest a minor top may be due sometime soon. The worst case of the likely scenarios is a correction akin to the August 2010 decline. The likelihood of a top to this run resulting in a resumption of the bear market is low, but as always we must keep our minds open to the possibilities and keep one eye on the mouth of the bear cave.

Certain world markets--largely in Asia--have been in a downtrend since November and others, such as Korea's KOSPI, have experienced strong selling very recently. This has placed many traders and analysts on alert for a big decline. Indeed it is worth keeping a sharp lookout to determine whether these divergent markets are leading a topping process. A dramatic divergence between US and other developed market equities (Europe and Japan) and much of the Emerging Markets and BRIC markets has developed since the November bottom. At this moment I actually regard this as a bullish development. (more)