We mentioned yesterday the very prominent gap created in the S&P 500 chart; it sits around 1075. Usually these gaps on an index will fill within 2-5 weeks, but this one has a good chance to fill sooner. Of course some gaps take much longer to fill (we still have S&P 906, NASDAQ 1800 to take care of).

In the bigger picture we remain in a hefty uptrend and until we begin breaking down out of this channel and/or down below a key moving average (such as the 50 day) index short positions have to be quick and dirty. Current strategy is to sit on the largest cash position I can remember and try to deploy some if/when S&P 1075 hits. S&P 1080 is the level we broke out from (double top breakout) so that also provides a line in the sand bulls want to defend. At this point we could fall all the way to S&P 1040 (rising by the day) and nothing has changed from a big picture perspective.

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As for earnings, again no surprises anywhere... and the market now has built in some of this upside. Gold and silver the previous 2 sessions have not reacted as normal to dollar weakness which is a slight divergence - could just be resting after a dramatic run, but something to keep an eye on. Other than that, it's the same old same old - government is crafting multiple more stimulus and handouts (while not calling them stimulus) so we are a slave to those news items. And I see no change from the Federal Reserve for a very long time... easy money is the newAmerican ethos. So the question becomes at what point does this market begin to discount some end point of the subsidized economy of continuous government handouts and Federal Reserve backstop of the entire US economy. When Goldman finds out when the Fed will begin withdrawing stimulus, and the government is done throwing lifeline after lifeline to the economy - I'm sure they'll let the rest of us know. With elections coming in 13 months I expect a bevy of new handouts to win votes....

In the nearer term, most of our huge financial oligarchs have reported and now we move to the regional banks who do not have trading desks to support their degrading commercial banking arms. Citigroup (to a lesser degree), Goldman, and JPMorgan have simply been taking no prisoners in the fixed income parts of their business... massive growth. What has happened here is what we said would be the future last winter once it was clear Lehman would die, Goldman and Morgan would live, and Merrill was pushed inside Bank of America (recall Bear Stearns is now inside JPMorgan). Fewer oligarchs dividing up a growing pie. Not only that they are raising fees because there is less competition - it's almost as if this whole crisis was planned. That's the Wall Street economy but as you peruse these reports and listen to what is happening on the commercial side of banking i.e. the Main Street economy, it's very poor. Unfortunately for most of the banks that are going to be reporting in the next few weeks they have little to do with Wall Street and are more of the traditional type of banks... so it won't be such a pretty picture for them. As for all other sectors I don't know how many more weeks/months we can be surprised by the same news.

But as said above, until the technicals take a turn for the worse buy the dip will reign. Valuation is in many cases ridiculous but one could say that in June 1999 and miss out on countless 100%s of gains in some stocks ... lemmings will dance until the music stops. Or in the new paradigm, until the Federal Reserve is content it has destroyed the US dollar by flooding the world with fiat currency. What I read yesterday about Canada really struck me... a global race of quantitative easing as countries vie to protect their export markets scares the living daylights out of me. But I suppose even more fiat currency from every corner of the globe only pushes up stock prices right? Fixed amount of stock certificates chased by paper money of all colors and stripes...

Nominal versus real gains... keep those in mind; especially if you are reading this from the US or UK.