It was a great week to be bullish on stocks. Better than expected earnings results, easy-going Fed policy, and a falling U.S. dollar all overshadowed lackluster economic data. The market powered past resistance to close at new two-year highs. Maybe the market has selective memory. Concerns over Europe's debt problems? Forgotten. Libya's civil war? Forgotten. Rising oil and the impact $5 gas might have on the consumer? Probably not forgotten but definitely being ignored.

The U.S. stock market just ended the best six months of the year with a bang! The S&P 500 index rose +1.9% for the week. The NASDAQ composite was up +1.8%. The Russell 2000 small cap index and Dow Industrials were up +2.3% and +2.4%, respectively. Yes, the end of April marks the end of the best six months of the year. That's why you probably heard so much about the "sell in May and go away" strategy.

Historically stocks produce the best returns from November through April year after year after year. Obviously there are exceptions. The talking heads on CNBC seemed to be doing everything in their power to convince you, the viewer, that selling in May and going away would be a foolish strategy this year. You know, because this time it's different. Now I'm not suggesting that we "sell in May" but the tone on CNBC seemed a little too eager but I'm not here to bash television tonight. I will point out that not only are the market's major indices at two-year highs but that some of them are at all-time highs like the small cap Russell 2000, Dow transports (and the individual railroad index), and the healthcare index.

Fueling the rally was another very strong week of corporate earnings. More than 60% of the S&P 500 components have reported their Q1 earnings. Only 15% of the companies reporting have missed estimates. That's better than normal. We're past the heaviest two weeks of earnings. Corporate reports will continue to crowd the headlines for the next couple of weeks but we're in the home stretch and these will likely have less of an effect on the market as a whole. Investors focus will likely return toward economic data.

Speaking of economic data this past week the reports were less than inspiring. The U.S. Q1 GDP estimate came in low. Consumer confidence was flat. The ISM Chicago number is declining. Plus, the weekly initial jobless claims came in worst than expected yet again. Weekly jobless claims have been above the 400,000 level the last few weeks and they're getting worse. This past week they hit 429,000 when economists were only expecting 390,000. The recent trend of rising claims does not bode well for the upcoming jobs report due out this Friday. Currently economists are expecting +145,000 jobs for April, which is a drop from March's +216K.

One of the biggest events this past week was the FOMC meeting on Wednesday. As expected there was no change in rates. The Fed said they see the economy growing at a "moderate pace" which is a bit of a verbal downgrade from their prior comments. Of course this means they will keep rates low for the foreseeable future and the Fed's statement kept the "extended period" language. The group of Fed governors downgraded their 2011 GDP forecast from a range of +3.4% to 3.9% down to +3.1% to 3.3%. Last week's meeting was unique in that Federal Reserve Chairman Ben Bernanke held his very first post-meeting news conference with reporters. Evidently the market liked his responses and stocks rallied into the close on Wednesday. Precious metals also saw a huge boost from his comments.

Gold and silver were some of the best performers last week. The U.S. dollar continues to sink and fell to new multi-year lows again. A falling dollar is great for the country's debt problems since the debt is worth less every day. A falling dollar isn't so great if you get paid in dollars or buy stuff with them. Food inflation is on the rise and a declining dollar is bullish for commodities since it takes more dollars to buy them. The combination of inflation fears and dollar weakness pushed gold and silver to new highs. Gold rocketed toward $1,570 an ounce on an intraday basis. Meanwhile silver came close to the $50 an ounce level on an intraday basis. Silver's old 1980 high was $50.50. Gold is up +8% for the month but silver is up +22%. Both metals look very short-term overbought and due for some profit taking. Considering the dollar is oversold, these trends could reverse at any moment.

Weekly Chart of the U.S. dollar index:

Weekly Chart of the GLD gold ETF:

Weekly Chart of the SLV silver ETF:

The big cap S&P 500 index has rallied to new two-year highs. The close over 1350 helps alleviate worries about a bearish double top pattern. The next level of likely resistance is the 1400 area. Beyond that it would be the May 2008 peak near 1440. On a short-term basis the S&P 500 is a little bit overbought. I suspect traders would jump in to buy the dip in the 1350-1340 zone.

Daily chart of the S&P 500 index:

The NASDAQ composite's breakout past the 2007 highs near 2860 is very positive. Yet the NASDAQ also looks short-term overbought here. The February 2011 high near 2840 could offer some support. Otherwise the NASDAQ is probably looking at a dip toward the 2815-2800 area.

Daily chart of the NASDAQ Composite index:

Intel (INTC) helped launch a reversal in the semiconductor sector two weeks ago. Shares of INTC are still climbing and hit new multi-month highs on Friday. The stock actually looks very, very short-term overbought and due for some profit taking. My concern is that when that profit taking hits it will have a very negative impact on the SOX index, although broken resistance near $22.00 for INTC should be new support. The SOX index has climbed to new six-week highs and closed back above its 50-dma.

Daily chart of the SOX semiconductor index:

One of the most encouraging signals in the market is a new high for the small cap Russell 2000 index. After a two-week bounce the small caps could see a dip but it continues to build on a bullish trend of higher highs and higher lows.

Daily chart of the IWM Russell 2000 ETF:

We have a very busy economic calendar this week. I'm not going to list everything but some of the highlights will be the ISM index, factor orders, ADP employment report, ISM services, and of course the non-farm payrolls (jobs) report. The ISM comes out on Monday. The ISM services and ADP report are released on Wednesday. The jobs report will come out Friday morning.

Looking ahead the trend is up but there are definitely some potholes in the road. On a very short-term basis the first few days of this week could be strong. It's a new month and fund managers normally put new money to work in the market. Thus the market is likely to grow even more overbought before it seems some normal profit taking. Things might get quiet on Thursday as we wait for the jobs report on Friday morning. Although lately even a disappointing jobs numbers has not been able to derail this rally. Any dip could just be another entry point for the bulls.

I can't predict what's going to happen but it wouldn't surprise me to see some selling or maybe a sideways market the last couple of weeks of June. The Fed's QE2 program is set to expire at the end of June. Currently there is a lot of unknowns surrounding that event. What will happen to the bond market and the U.S. debt auctions once QE2 is over? How will that impact the dollar? Fortunately, that's almost nine weeks away.

There is a good chance that Europe's debt problems will flare up again in the next several weeks and that could always have an impact on stocks. I'd also keep an eye on oil and gasoline prices. Gas prices tend to rise in the summer and they're already in the $4-$5 range in parts of this country. How much higher can fuel prices go before they start to impact the consumer-driven economy? Wal-mart (WMT) issued some sobering comments this past week. Many of their customers live paycheck to paycheck and WMT's end of month sales are falling as consumers run out of money toward the end of the month.

I've been telling readers that the last two weeks were pivotal for the market with earnings and the FOMC meeting. There is no arguing that the bulls have clearly won the battle. The trend is up and we should be looking for buy-the-dip entry points.

Sunday Night Update: President Obama has informed the nation that the world's most-wanted man, Osama Bin Laden, has been killed. This news could help drive stocks higher on Monday.

- James