Market at a Crossroads

The market continues its bullish bias.  Low interest rates remain the source for institutional investors to access cheap capital to trade the markets.  The US Dollar continues to trade against resistance from above and the Euro is supported by resistance from below their current prices.  This currency conundrum is what we will watch for resolution.  That may be the single determining factor for the next directional move for the markets.

I still believe a rising US Dollar will be bad for asset classes such as stocks, precious metals and commodities - inverse to what we saw last year as the dollar fell and most markets rose.  Should the Euro resolve their problems with Greece and not face immediate issues from Spain, Portugal, or Ireland then the Euro should rise and the dollar will fall.  If that becomes the case, expect the bull market in stocks and commodities to continue.

From a technical standpoint the markets are rising on light participation - meaning extraordinarily light volume.  Volume usually means conviction.  Therefore there is not a huge amount of conviction from participants that the current rally will continue unless more volume starts to come in.  The stock market is short term very overbought, however things can remain overbought for extended periods of time. 

The January 2010 market highs on the Dow and S&P 500 remain to be breached and could act as resistance against further advancement.  Should these indices fail at or below 1051 for the S&P and 10,730 on the Dow, a double top formation could cause the markets to drop once again with first support coming in at 1044 and 9835 for the S&P and Dow respectively.  We remain at a crossroad.