Stocks continue to rally in spite of investor fears. A week ago there was new concern that China was going to tighten bank reserve requirements again. That hasn't happened yet. Instead the Greece situation is heating up again. After all the meetings and promises by EU leaders it looks like support isn't coming fast enough for Greece. The country said they may have to seek aid from the IMF as early as Easter weekend. The markets interpreted that scenario as very negative for the Euro-zone and the euro currency plunged again. This boosted the dollar and yanked the carpet out from under commodity prices.

Commodities were also hit by a surprise interest rate hike in India. Inflation hit 16-monthis highs in India and the country's reserve bank decided to raise rates. The fear is that this could be the beginning of a widespread removal of stimulus while the global recovery is still fragile. China has already started. Now we get India's first move in over a year. Investors are wondering who's next?

Here in the states what economic data we did get was relatively benign. This week we will get retail chain store sales, existing home sales, new home sales, durable goods orders, the U.S. GDP revision, consumer sentiment and the Richmond Fed and Kansas City Fed manufacturing surveys. I don't really expect any to be market movers but keep an eye on the home sales numbers.

Home values seem to be slipping fast again. Remember, we have more than three million foreclosures currently on the market and we're expecting another six million foreclosures over the next three years. Plus, the market is swamped with short-sales, where the home owner owes more than the house is worth and is trying to negotiate with the bank to sell it for less. There could end up being a spurt of activity in home sales as buyers try to close deals before the April deadline to qualify for the expiring tax credit.

The markets will also be watching the healthcare battle in Washington. There is supposed to be an "historic" vote on the current healthcare bill this Sunday. At last count the Democrats were still a few votes shy. President Obama cancelled a couple of overseas trips to stay home and twist arms as his party tries to wrangle up a few more votes. Many Democrat lawmakers are very nervous to officially vote on the bill. Some sources claim nearly 60% of the U.S. population is against this current version of reform. It was interesting to see the healthcare sector rising into the weekend as if the stocks knew the vote would not pass or not occur. Monday could be an interesting day for this group of stocks.

Overall I am still bullish on stocks but reluctant to launch new positions. The trend is up but the market really needs to see a pullback first. That may not happen until after March 31st. Money managers will be tempted to window dress their portfolios so they look good for your quarterly statements. It is the first quarter of 2010 and the chase for performance is on!

I would not be surprised to see the S&P 500 dip back toward 1150 or 1130 before moving much higher. I would expect the NASDAQ composite to find some support near 2325. If that fails then at the 2300 and 2250 levels. Looking at the Dow Industrials I'm watching the 10,500 level for short-term support. The small cap Russell 2000 is very overbought so don't be surprised to see a dip back toward 650 or lower. I will repeat, any pull back may not happen until after the quarter ends but odds are growing each day that the correction is getting nearer.

We should expect volatility to increase. China could still tighten its monetary policy and this fiasco with Greece will continue to dominate the headlines.

Chart of the S&P 500 Index:

Chart of the Russell 2000 Index:


Previous Comments on my Long-Term Outlook:

My long-term outlook has not changed. I still expect the economy to see a double-dip, "W"-shaped rebound with the second dip in 2010 (some analysts are predicting it will not show up until 2011). Lousy consumer spending, rising foreclosures, and lagging job growth will be the main culprits. Several weeks ago there were some comments out of the U.S. Treasury concerning foreclosures. The Obama administration's HAMP loan modification program can only help a certain number of homeowners and one official said that even if the HAMP program was a total success we should still expect millions of new foreclosures. This only reinforces my own belief that we will see another tidal wave of foreclosed homes in 2010 and 2011. Some analysts are forecasting upwards of six million foreclosures in the next three years. What is that going to do to consumer confidence and consumer spending? It's not going to help! You can review my long-term outlook here. It's the second half our my "Two Months Left" commentary.

~ James Brown