Dow 10,000, Infinity & Beyond!

I thought I would follow up on yesterdays late day missive.

SPX currently 19.5% above 200 day mva. Historically 20% above the 200day MA has proven to be a tough obstacle to overcome.

*During the 2002/2007 bull market, we never hit +20%.
*1986 and 1987 saw 19%/20%, but no higher.
*1982 saw the deviation briefly above 20%.
*1975 saw a marginal move above 20%.
*1943 saw the 20% deviation again prove good resistance.
*1935 and 1936 though saw the deviation above 20%.
*1933 saw the S&P 500 59% rich to its 200-day.
*1929 saw the 20% deviation again prove good resistance.
*94% S&P 500 stocks also now above their 200-day average.

You can't turn your nose at a 60% retracement from the lows and with the Dow at 10,000 again the equity community are likely celebrating the return of the heady days of the market.

Here is a very good comment picked up from Bloomy this morning.

****Intel Corp.’s sales forecast and earnings from JPMorgan Chase & Co. pushed the measure up as much as 1.6 percent to 10,027.73 yesterday. "A lot of people make fun of these milestones, but I think that it has an effect on psychology," said David Darst, the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has $1.4 trillion in client assets. "That can have an effect on tipping people over to being more worried about being out of the market."*****[Bloomy]

Not so fast I say.

I suspect that there is money on the sidelines waiting to join the party; but for my purposes, I will continue to stick to the notion that we are about to enter the third leg of the W and thus currently sit at an inflection point. One of my market colleagues with many years in the business, had this to say - " I'm now thinking what's coming is leg 2 of a Nikkei-style Triple Waterfall" - which is a lot worse than my suggestion I suspect the new down leg won't reach anywhere near the lows we saw 7 months ago as buyers of dips that might not have participated in this massive run up, likely join in.

But wait one moment....last week we had punters in the Canadian market openly talking of the BoC likely raising rates sooner reflected by the sell-off in the BAX futures and we had a very violent move higher in US rates as the market started incorrectly interpreting the FED's statement as a desire to hike rates sooner than later I don't subscribe too either .

Yesterdays FED statement more accurately articulated at Alphaville this morning

*****DOLLAR HIT ON FED’S DOVEISH TONE - Posted at 04:57 by Gwen Robinson

The dollar fell on Wednesday after minutes from the Federal Reserve’s last policy meeting showed that while some committee members favoured increasing Fed purchases of financial assets to speed recovery, just one policymaker urged a reduction in buying. This overall doveish tone was echoed in the discussion of inflation, suggesting that the Fed is still a long way from raising interest rates. **** (FT Alphaville)

In Canada with the Canuckie Buckie roaring ahead (buy Cad Calls and wear diamonds, or if not sell strangles, after all recent history has shown us 12 big figures stronger from here for Funds is very do-able) the lack of an intervention desk, and the game of competitive devaluation now a fully global one (note the complete lack of vocal statements on a strong greenback policy from Geithner and the administration as the US dollar gets pilloried).

Let's look at other reasons for what might be deemed an artificially high level for equities and reasons why hikes are not likely in North America until the second half of 2010.

We have had a complete government sponsored equity market rally, we know banks are still not lending to each other despite where Libor might be as more hoarding takes place, we recognise that all the wobbly assets that are still off balance sheet will have to be brought back despite current ongoing deferrals, we know consumers are certainly not consuming as much and are certainly not borrowing as much and without the various credits and programmes , whether it was cash for clunkers or first time house buyer credits, that some of the results seen to date would have been even more woeful.

You have an FDIC almost out of cash, the FHA (Federal Housing Administration which insures mortgages with low down payments) likely requiring a bailout of its own, a much larger unemployed population than the data suggest due to the fact that benefit exhaustion rates are screaming higher and with that other impending situations, as we note Commercial Real Estate defaults increasing and with that CMBS's likewise.

But I suspect all eyes will be on equity markets as more good news comes in with Goldman easily surpassing ( not surprisingly) its EPS forecasts and I suspect BoA and CITI will show similar.