Just as I was wondering yesterday as to where the driver to move this market higher might come from, I received the answer load and clear.

ADP’s report, that private employers had added 93,000 jobs in November, which was better than expected, set the tone early on. Other data, such as the ISM, suggested that manufacturing is holding up nicely, while the Fed’s beige book report described an economic environment that is gaining momentum.

That was all it took, and the major indexes never looked back as the chart above shows. The rally was broad and deep with solid volume. Obviously, interest rates were higher with commodities, oil and gold following the up move, while the dollar sagged.

Even news from Europe had a positive twist as speculation increased that the European Central Bank will enact measures to better contain the debt issues of various countries. Whether they actually can agree on something remains to be seen, but for today at least, there were no negative market influencing news to be found.

There is more to come in regards to economic data points with the most important one being Friday’s jobs report. If that supports ADP’s positive data, along with no surprises in the unemployment rate, we might see another move to the upside.

As I have posted from to time, market direction may be more influenced by external circumstances than internal ones. That proved to be true yesterday, as another early morning sell off put the major indexes in a hole again.

A stronger dollar, supported by ongoing European debt problems, put the bears clearly in charge. The bulls staged somewhat of a comeback because of encouraging consumer confidence and manufacturing data. Disappointing was the Case-Shiller Index that showed house prices falling in September.

Getting the attention of the markets was a newly opened antitrust investigation by the European commission alleging that Google has abused its dominant position in online search. That kept a lid on any rally in the technology sector.

Another market worry for financial stocks were reports that WikiLeaks plans to release tens of thousands of documents from a major U.S. bank early next year to expose “an ecosystem of corruption.” Not really a warm and fuzzy feeling for the banking sector.

While today’s rebound attempt fell short, I have to wonder how many more times will bullish forces come to rescue before the bears finally gain the upper hand. The market looks very toppy to me and seems to be in need of a new driver to break through to a higher level.

I am not sure what that could be but, as long as international events (Europe and Korea) dominate the headlines, we may be stuck in a trading range for a while.

The major indexes dropped like a rock in the early going yesterday, fueled by continued worries that Ireland’s debt problems might spread to other European countries. The dollar rallied while interest rates headed lower.

The stock market slumped to its lowest level since October within the first hour of trading with the Dow breaking below its psychologically important 11,000 level. A big comeback pushed the indexes almost to a breakeven point without any particular news being accountable for the rally.

Short covering could have played a role along with the dollar slipping back later on in the session. Today’s economic menu includes the Case-Shiller home price index, Chicago PM index and Consumer Confidence, all of which can influence market direction.

The outcome of these three data points could very well determine if the major indexes close the month of November with slight gains, or if they end up slipping into the negative column.

Earlier this year, we took some positions in UUP (bullish dollar), as its price crossed its trend line to the upside (see arrow in chart). After the high was made in June, we subsequently got stopped out (at a small profit) as the dollar got clobbered and headed south again.

This reversal clearly supported the stock market as the dollar and the market, as represented by the S&P; 500, remain locked in an inverse relationship, as this 1-year chart shows:



Since the beginning of November, UUP has been in an upswing again causing weakness in the markets. The current momentum figures look as follows:

4-wk: +4.20%
8-wk: +2.96%
12-wk: -2.02%
YTD: +1.00%
%M/A: -2.09%

With its price is still hovering -2.09% below its long-term trend line, this is not considered a buy yet. But, as we’ve seen recently, sentiment can change in a hurry.

It only takes some more bad news in regards to the European debt saga, or a sudden act of madness by the North Koreans, and the dollar will surge, while the stock market will head the other way.

In that sense, watching the direction of UUP, will give you some idea as to what’s in store for stocks.

Disclosure: No positions

Once in a while you find a politician who actually says it like it is. While this is a rarity here in the U.S., with maybe the exception of New Jersey governor Chris Christie, you have to look to the other side of the Atlantic to find refreshing and brutal honesty.

While we’re stuck in this ridiculous trap called “political correctness,” some of our British counter parts have turned “outspokenness” and candor into a real art form. Here’s Nigel Farage in a speech before the European Parliament. Enjoy!

Hat tip goes to Mish at Global Economic Trends for this bon mot.

One of my favorite reads of the day is Dr. Housing Bubble. While he mainly focuses on real estate in general, he occasionally also comments on the economy.

Since the real estate crash has had such a negative impact on the lives of many investors, is there really a recovery in the cards next year? For one viewpoint, here are some highlights from “The long road to a housing recovery:”

The housing market has very little chance of maintaining a sustainable recovery until it clears out the immense amount of shadow inventory. This inventory cannot move without solid employment growth. The water cannot flow freely until we unclog the filth plugging the drain.

In the end, the housing market won’t improve until we clear out this enormous backlog. What is the ultimate goal about propping up home prices? Wouldn’t it be better for the overall nation to dedicate less disposable income to housing and shift this spending on to other goods?

There is much more to this article including charts and graphs; if this subject interests you, click on the above link.

For sure, without any major improvement in the employment area, real estate will not recover. After all, last time I checked, people do need an income in order to make their mortgage payments.

At the same time, the enormous backlog and shadow inventory will need to be cleared as well, before some pricing power can be restored.

To my way of thinking, attempting to prop up real estate prices with the creation of artificial demand via stimulus programs is doomed to fail, as we’ve seen in the past, and as a result has merely postponed the inevitable.

Prices need to fall to a level where genuine demand picks up; in other words, a point needs to be reached where homes become affordable again based on median incomes for a given area. Where that level will be, is anyone’s guess at this time, but I believe that we will not get there next year.

Of course, reaching that lower price point will inflict an enormous amount of financial pain on the banking sector as these accumulating and accelerating loan losses will need to be realized—eventually.

On other hand, as recent history has shown, the likelihood is great that the taxpayer will be on standby again to bail out whoever needs to be bailed out. I can only hope that next time around, other options will be considered.