The low volume grind higher continues in equity markets. It's frustrating all the bears and energizing the bulls. It's gotten to where it's almost politically incorrect to be bearish. We've actually seen this before. Twice, in fact, in the last 10 years.

So why does the market go up in the face of all of the negatives? Simple. There are more buyers than sellers. That's it. It's just that simple. If buyers outnumber sellers, price rises. If sellers out number buyers, price declines. So perhaps the real focus should be on what motivates buyers and sellers, and when the pendulum may swing in the other direction.

In a more normal market, you'd expect price to earnings ratios and dividend yields to influence large number of buyers and sellers. Although that still matters to some, I believe they are in the minority in the current bubble environment we're in. 

What matters today, and what drives the majority buyers and sellers is momentum and technicals. It's all about price direction. This is the third time since at least 1995 that we've seen this phenomenon at work. It may not be the last. 

This one will end just as the others with a bubble created simply by price momentum. The key is to know what pricks it and gets the ball rolling in the other direction. It could be the Fed beginning to tighten, although I doubt it. Perhaps it'll be rising long term interest rates as investors back away from our debt causing bond prices to fall and rates to rise. Or perhaps it'll be some large traders deciding enough is enough and they begin to sell. I can't be sure tonight what the catalyst will be, or when it will appear. I simply know that it will.

How do I know? Because all bear markets end with real value showing up in the market place. By that I mean 6% dividend yields on broad stock indices and single digit P/E ratios.  We haven't come close to that yet, but I think we will before the secular bear is over.

But for now, and until further notice, the momentum is up. It WILL change, and it could be soon. 1160 is as good a place as any. When it happens it will be unmistakable. That's because most of us recognize a rerun when we see it.

Download | Duration: 00:36:38

The dollar has now rallied enough to reach the 200 day EMA. This was a given after the 50 day was breached. Commodities have felt the pain, but not stocks. What gives?

The fact that stocks have held up here is a clue to me that the dollar will continue to strengthen and pierce the 200 day. It also suggests that stocks will continue their strength and move higher as well. How long that lasts will be the question.

The reasoning will be that the economy is strengthening thereby justifying higher interest rates and a stronger dollar. And since the economy is strengthening, profits will be higher supporting higher stock prices. Presto. Just like that the inverse dollar/stock trade is gone.   

The 1121 area of the S&P could be that last hurdle in the way of this bullish interpretation. It appears ready to fall at any moment.  The light holiday trade may be just the environment to slay nasty resistance and run the stops that surely rest just above that level. We shall see.

What all of this means for Gold, Silver and the rest of the commodities world is where it could get confusing. I would expect Gold and Silver to hold up better than other commodities, with Gold perhaps not falling much below $1000. It's day in the sun is far from over.

Perhaps the best trade here is to pick up the metals and other commodities on weakness. It could be a hard ride to stomach, but it should pay off longer term.

So now the battle rages at the 200 day for the dollar. This is not the ideal time for it to be occurring, but that's the hand we've been dealt.

Download | Duration: 00:31:03

My good (cheap) friend Dale, who eats with me most days at the Famous Foley Coffee Shop, bought a book (used of course) from an internet vendor. He wanted me to read it first and then perhaps chip in $4 towards the $16 price. Then, he said, we could let Mark read it and he could chip in $4 and so and so on. Pretty soon he'd make money on the deal. You have to know Dale to appreciate how that is JUST like him.

Anyhow, he gave me the book yesterday. I finished it today. I couldn't put it down.

The title is "The Great Depression, A Diary" by Benjamin Roth.

Mr. Roth was a young lawyer in Youngstown, Ohio in the 1930's. He was very interested in the financial markets and politics. By 1931 he knew something wasn't right with things so he decided to keep a diary. He did an exceptional job. His diary has now been turned into a book by his son and grandson.

If you are even slightly interested in the parallels between that era and now, you should find this book and read it. If you do, remember to send me your $4 dollars. Dale's going to be asking for it. 

The S&P remains trapped below the 50% retracement level at 1121, but it's acting like it wants out. Even dollar strength has failed to derail it (so far).

With interest rates near zero, people are desperate for yield. This is forcing money into places it normally wouldn't (or shouldn't) go and is creating the next mis allocation of capital in our markets. Why am I not surprised.

First it was stocks, primarily Technology. Then it was real estate, financial stocks and commodities. Now they'll settle for any asset class they can inflate, metals and stocks are the flavor of the day. It's like watching a movie for the third time.

This is what Central Planning gets you, chaos an inefficiencies. A free market has to be "free" to thrive. It also has to be free to fail. That's what keeps it in balance. We haven't really had that in "who knows" how long. We certainly don't have it now, and our Country is paying the price.

Where this ends is anybody's guess. But I'm betting it's a place no one really wants to go.

Download | Duration: 00:24:02

The range lives!! For a month now, bull and bear alike have survived side by side in this tight 30 or so S&P point range. I miss the good old days where it could take all of 7 minutes to swing that far. Don't you?

The volatility has dried up so much I believe the daily bollinger bands may cross! That's impossible of course, but you get the idea. They are squeezed together very tightly however...an indication that volatility will soon rise. The direction of the move is the only question.

With the dollar trying to bottom and Gold reversing from it's mini parabolic blow off move, my guess would be that equities would break lower. The 50 day moving average is just below these levels. A breach of that may be the spark needed to get a fire going as the old song goes.

The breakdown in gold is really not all that surprising if you simply look at the flag pattern it was in. Forget it's gold and just look at the pattern. It counted up to near the levels it broke down from. Noticed I said "near" and not "to" the target. The parabolic nature of the move may be the reason it broke down short of the ideal target. Just too many people jumped on board at the same time.

What happens next will depend on the dollar. It's been trying and trying to find a bottom. The shorts just kept piling on and driving it lower. But it held it's low from early 08, and by a fairly wide margin. Also, the divergences have been piling for some time up in favor of a bottom, so no one can say they didn't have warning.

A trip to the 200 day MA for the dollar is almost a given now that the 50 day has been breached. The real battle should be fought at that level. A lot of dollar shorts could be squeezed with a break above that. You think Goldman doesn't realize that?

So watch the dollar tomorrow along with the 1080 level in the S&P. A hard break of that level will surely bring out fireworks. 
I should note, however, that the market's been turning up from these "oversold at support" levels for the last month, so be alert.

For those of you in the US, the following commercial will be familiar. It was running at the peak of the credit boom. The message was intended to be "If you're in over your head with debt, we can help....by loaning you MORE money". The real message in it was "Americans are buried in debt and are doomed to a future of payback".

Very simply put, that's the real problem. It's not complicated. Credit took the place of money in our society. Even businesses who use to operate on their own capital began to operate on lines of credit. Now those credit lines are being reigned in and reduced stressing many businesses cash flows and hindering employment.

Need a down payment on a house or a car but don't have the money? No problem, we'll loan it to you. You can have CREDIT. Just gotta check that FICO score! Hey, looks okay. You're good to go. Sign here.

So here we are, a couple of billion signatures later trying to patch up a financial explosion that most closely resembles the Hindenburg. Good luck with that. 

So enjoy the clip. Send it to your friends if they've never seen it. I'm sure many of them can relate.

 http://www.youtube.com/watch?v=WFMwYNX5qUk&NR=1