The recent out performance of the $DJIA is due to the fact that it was undervalued below 10,000. It is still early to get an accurate revision on S&P500 valuation, but I expect it is still overvalued. The outlook for 2010 should be clearer after the Wholesale Trade Report @ 10:00 am Wednesday. Recent options activity suggest the recent move up is purely speculative but I expect the next dip to 1060-1075 will be bought up again quickly. The $USD rally will likely be limited to 80-83 and hence should not have an adverse affect on stocks.
So, unless institutions start selling aggressively soon, the market should continue its drift upward into Jan when the economic picture for 2010 becomes much clearer as indicated by the LEI's. Also we will be at the doorstep of the next earnings season which will paint the picture quite clearly. We could very well see another run up ahead of that earnings season with profits being taken ahead of the reports as we saw in the past because it is hard to imagine them being able to surprise or ratchet up the estimates significantly again. The real clincher will be if earnings for S&P500 get revised lower. In that case, look out below, since there are other major headwinds coming in 2010.
This fits with what I have been saying all along, that is: the best shorting opportunities will be after the January highs are in. be patient and let the market moves play out. They are illogical and overvalued much of the time!