It does not pay to get bearish on this market. Not yet, anyway.

The Dow was down just 14 points on Friday, which set the stage for the surprise rally on Monday morning. The dollar weakened about half a percent over the weekend. Since U.S. equities are priced in dollars, the declining greenback creates buying pressure, since shares look cheaper to overseas buyers. We think this trend is likely to continue until the Dollar Index falls to its 2008 low, about 5% lower than Monday's close.

All three major indices set new yearly highs on Monday, which the financial media regards as particularly bullish. One reason is that the S&P 500 has been lagging the pack. With ‘confirmation’ from the S&P, some market technicians are breathing a sigh of relief. Hummmm. 

Unfortunately, we do not concur with the rationale for the enthusiasm. As the market moves higher, we are getting more cautious, not more bullish. We have two technical resistance zones in mind, one is Dow 10,500 and the other is Dow 10,800. These levels operate like the orbits of electrons around an atomic nucleus. Electrons are stable at these orbit levels and don’t spend much time in transition. Markets act the same way. If the Dow can break through the 10,500 zone, we expect it to travel to 10,800 rather quickly. Time will tell.