Do you remember the old Wendy's commercials where the little old lady asks, "Where's the beef?". I feel like asking "Where's the correction?" The stock market continues to melt up with many investors waiting for their chance to hop on board. Is this another case of fund managers having to put their money somewhere so they reluctantly put it into the market?

The major averages are up six weeks in a row and hitting new 52-week highs. The S&P 500 index is up 14% from its February 2010 intraday low. The NASDAQ Composite is up 16.8% from its February intraday low and the small cap Russell 2000 index is up 21% from its February intraday low. Does "smart money" really want to chase these kinds of moves?

Last week I said that the S&P 500 index was technically still bullish and looked poised to rally higher. Now it seems like the path of least resistance is up until someone finally comes up with a reason to sell. That reason could be earnings but more on earnings season in a bit. First let's chat about the headlines.

The Greece financial fiasco continues to fester across the Atlantic. The Greek bond market is imploding with yields on 10-year Greek notes soaring toward 7.5%. Essentially this is the open market shouting that they do not believe Greece can make it on its own. Eventually Greece will have to see a real bailout with real money and not just promises to help. While this Greece challenge makes headlines it's not having much affect on the major European markets. The German DAX and English FTSE continue to climb and both remain near 18-month highs.

The real issue is not Greece but the other PIIGS countries. Portugal, Ireland, Italy, and Spain are all on the warming up on the sidelines for their chance to bat at the world series of debt defaults. If the EU is struggling with how to handle Greece how are they going to handle countries like Italy or Spain that have economies and debt issues four to five times larger than Greece? These countries are facing their own default scenarios and the ratings agencies are starting to notice. Furthermore Germany is the EU's largest economy and the Germans do not want to bailout Greece. How do you think the Germans going to feel about throwing money at Italy or Spain? You can see why some analysts believe the EU and the euro is eventually doomed.

The trials and tribulations of the EU are longer-term big picture problems that will take months and years to sort out. In the short-term we're faced with the prospect of Q1 earnings season. Dow-component Alcoa (AA) actually kicks off earnings season this week but investors tend to gloss over their report since the company has a history of missing estimates. The high-profile names everyone will be watching are BAC, GOOG, JPM and INTC. These big cap leaders will set the tone for earnings season. The challenge is that even if they beat estimates stocks could still see a sell-the-news reaction. It's the perfect excuse to take profits. Wait until the company reports and no matter what the results are investors can sell into strength knowing there will be a lot of volume following the announcement.

I suspect that stocks will continue to melt higher into the second full week of earnings (two weeks from now). After this second week of results are over odds are pretty good that the profit taking will begin in earnest. A lot of investors are going to want to lock in gains early and jump in front of the sell-in-May and go-away crowd.

In summary the market remains very overbought and due for some profit taking. The long-overdue correction could begin in the second half of April, especially if investors are worried that the Federal Reserve could change the language to their fiscal policy at the April 27-28th meeting. I would hesitate to open any new long-term bullish positions over the next few weeks since stocks are going to look a lot more attractive after a 10% haircut.

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