The year of the 'W'

In the post immediately below we said:

...We aren't out of the woods yet. A few observant commentators are now positing that rather than the much discussed U or V or L shaped recovery, the economy may trace out a:

W

That was 13 hours ago. We'll try to give you more of a lead next time. This fellow was one of the observers who first made the point. Today he reiterates. Here's this morning's story from MarketWatch:

Commentary: Waiting is hardest part of market rollercoaster of 2009

A smart man once said that when trading financial assets, you can game the direction or nail the timing -- but you'll rarely do both.

We asked last week whether investors would again be wise to sell in May and go away. Central to that discussion was the observation that should the market mount S&P 875 -- the level at the time -- we must respect the potential for further gains in the near term to suck in those standing on the sidelines.

That script has indeed played out, all the more impressive given the steady stream of negative news. From the stress-test postponement to the swine-flu endemic to the Chrysler bankruptcy, there were plenty of excuses to take profits following the spirited sprint off the March lows. It proved yet again that the reaction to news is more important than the news itself.

I offered in a recent interview that when the dust settled at the end of the year, 2009 could look like a "W." We're currently dancing around the middle spike -- a widow's peak, if you will. The natural question is therefore: where are we on the rollercoaster? See link.

Continued strength remains within the probability spectrum, particularly if the greenback meaningfully declines. That's why we've steadfastly monitored the other side of our Wishbone World, a scenario where we jump the shark toward hyperinflation and anything denominated in dollars rallies on a relative -- though not absolute -- basis. See link.

Through a technical lens, there are a few observations to note. The market has room to run in the context of the lower highs that define a bear market. The first test will arrive around S&P 950, which is dual resistance in the form of the 200-day moving average and the one-year downtrend. The dollar, for it's part, would "break" below 83 on the U.S. Dollar Index Future (DXY) , potentially paving the way for higher asset classes.

The other side of the trade

We must remember that a cornered animal has little to lose....MORE