Just as I suspected, the market is showing us one last rally before the Fall. While this one is not as impressive as the earlier form of the rally, it is good enough to continue to frustrate the bears and keep hope alive amongst the bulls. While there is still nothing that says a robust recovery is coming to justify current valuations, the economic news is encouraging. What makes the rally less convincing is that there has developed clear divergence where a small number of stocks are doing the heavy-lifting for the general market indices. This rally started by lifting all boats - the current tide is leaving behind some dirty sand and old plywood behind.

Just to show how flexible the bullish argument is, look at the story around the dollar. As the dollar has strengthened in anticipation of a better economy, the bulls have changed from looking forward to a weak currency because it helps exporters and thus the economy, to looking forward to a strong currency because it increases Americans' purchasing power. I think this is just fine because America imports so much and is not a serious exporter anyway.

As more and more people become convinced that the economy is on the mend, all the elements are falling into place for people to get comfortable and complacent and unconcerned with any potential sell-off in the markets. Indeed, all the economic stimulus has managed to goose the markets up so much that the coming Fall correction probably will not hurt much IF you have been riding along from the beginning of the rally. That's the good news. The bad news, as I claimed last time around, is that all this means is that the final big correction of this bear market is STILL ahead of us, not behind. And given how "good" things have been, a real correction this time around will finally turn almost everyone into permanent stock market skeptics. You probably want to be a buyer then. But until that moment, you are wise to take profits when things are good.

Please note that because the bulls and optimists have postponed their robust recovery fantasies until early 2004, it will likely take a LOT of bad news to spark any kind of seriously deep correction before then. I suppose people will be looking to outlooks in the October earnings reports, but it is possible people will be willing to wait for the good news all the way until the January reports.

What indicators do you want to monitor in the coming weeks? Well, I will once again claim that what the market does after Labor Day will reveal what to expect for the Fall. And if the market is true to form, things will start pointing downward then. Please refer to a piece I wrote last year before Labor Day that discusses the dynamics around this pivot holiday: "Why so much angst-anticipation for post-Labor Day markets" at http://www.drduru.com/money/020902_Why%20so%20much%20angst-anticipation%20fo r%20post-Labor%20Day%20markets.html. You will notice some eerily familiar (and accurate in this case) prognostications!

In the meantime, as always, be careful out there!