MAY REPORT CARD (grade = ?)

June 2 -- So on May 4th (oh the inagural blog days) I wrote that I just dont see that Dow at 8500. And I must be blind because I still don't. Now, I think the jury is still out because its spent the past month bumbling back and forth without really breaking downward or upward either way... until today. The S&P 500 has broken out of the resistence range (out of its 200 day moving averages) and the Dow looks ready to do the same. If it does, this couple with positive economic reports could take us higher, continuing the current rally from March lows despite the recent pause. Now, the markets came close to breaking their resistence lows (878 on the S&P500) a few times and then moved strongly upwards.

Does that mean those lows were legit? Will the markets have trouble really breaking their 200 day moving averages as well (S&P 500 = 930; Dow = 8761)? Only the next day or so will tell. But IF these markets do move higher, I must ask: why? And on what news?? Cause from what I see, I just dont understand the recent market rallies.

The thoughts running through my head...

(1) The dollar is getting killed and losing value against the Euro and the British Pound. Does a weak dollar really translate into that much export business? It everything else (including oil) more expensive.
(2) Oil is skyrocketing. And while probably exaggerated, its somewhat founded - its based on China and lack of investment and drilling. This means the long-term oil price is going up. And if the US isn't going to really recover for another year or two, then that's scary. Oil will be painful to buy and damped economic prosperity here.
(3) Treasuries (the 10 year) are reaching almost 4%. Is that really because so many people are leaving them to go back to the market (as a good sign)? But again, why - why is the market so promising right now? Or is it because inflation worries and a devalued currency and the US AAA rating in question are all making long-term treasuries demand higher yields? If that's the case, that not a positive sign for the market.
(4) Green shoots (despite being contractionary many times - or just LESS contractionary) continue to provide big rallies without producing real outright growth.
(5) China is showing growth. Good for them, but does that really create the increase in our markets? If its such a sure/good thing, why not just buy Chinese index funds?
(6) The market has priced in GM's bankruptcy already and 2nd half positive GDP. But has it priced in a never to emerge from bankruptcy as a healthy company GM? Even if so, what if 2nd half GDP fails? is that the primary assumption (or should i say BET) underlying all the current "recovery" belief?
(7) Markets are about to break their 200 day moving averages. This is a big thing in the technical world. This would mean more money pumping in and spur the rally. But what of the fundamentals? Eventually the fundamentals come to light - does the market just hope to survive on optimism until the economy catches up?
(8) Did the markets price in a greater Armageddon than what ended up being reality? Did it overshoot to the downside? Maybe but also maybe things like the "uptick rule" and the suspension of bank's mark-to-market accounting rules played a part in reviving the market, which would mean that the markets (at their lower levels) had it RIGHT and the current rallies are simply facades based on cosmetic changes as opposed to a stabile economy (i feel bad even coming close to refering to things right now as a stabile economy given the financial debacle that continues, the shrinking of credit, the real estate drummings, and the inflationary period to come).
(9) How does the trifecta of higher interest rates (which makes treasury debt more expensive to services as well as raises mortgage rates likely), rising oil prices, and a weak dollar contribute to growth? No idea on that one.

So with all that in mind - you have a market that has gone up, that continues to go up and that scares those NOT invested into putting money in for fear of missing out on easy gains. What you DONT appear to have are legitimate economic reports of solid growth. You have hopeful green shoots that are just that - shots. bets on the future. hopes that the economy gets a shine and buff and comes back in the 2nd half of 2009. change we can believe in via stimulus programs (most of which dont kick in until 2010 unfortunately). consumer confidence based on great leadership, the delusional mindset of american financial supremacy and soundness for the past 30 years, and persuasive investment advisors who don't make money when you're invested in a money market account.

Let me pose one final question to myself -- even if these rallies are legit, how many more can there be and how long can they last? If economic growth by most all is expected to be meager through 2010 (i.e. below potential), then how can the market continue to grow on such strong rallies?

So in the long run, I'm sticking with my position, that the market needs a correction (and not just a sideways style pause). I mean, if nothing else, if you sound the same mantra over and over, it has to be proven right eventually, correct?