We’re getting a lot of volatility back into the market. I just listened to a trader compare where the market is today with where the Dow was post 1929. That chart shows that this year should be volatile and down overall. While everyone has theories, I see no useful connection between the Great Depression and the current economy, even though unemployment is high and many pundits are predicting a “double-dip” recession.

There was lots of pundit talk about yesterday’s rally in healthcare, supposedly because a republican was winning Massachusetts. When was the last time you bought a stock on an election result in a single state? Check the chart of IHF, and you see that healthcare companies have been on a continuous rally since March, 2008, a period during which passage of the bill looked increasingly likely. IHF fell and recovered with the rest of the market today. Our interpretation is that healthcare wins with the bill because of increased business. The current rally may be long in the tooth, but we’ll probably buy any pullbacks.

What the news is showing is a very gradual recovery. Earnings are mostly good with INTC and IBM blowing away their estimates, housing is picking up, manufacturing is recovering, and inflation remains under control. While the market may panic from time to time, it won’t ignore a continuing stream of improving news.

The dollar is recovering causing commodities, particularly gold to fall. The rising dollar is causing foreign countries to purchase U.S. treasuries and equities, helping the Fed fund the deficit. The deficit isn’t good, but being unable to fund it would be very bad. Meanwhile, We’re not worried about hyper inflation until we see it, and the probably indicator will be wage inflation, which currently non-existant. If the recovery is very gradual and interest rates are gradually brought back to normal, the Fed may be able to avoid the doomsday scenarios so popular with pundits.

Therefore, in spite of the ups and downs, we remain bullish, with the expection of a slow market rise in 2010. We note that RKH (Regional Banks) was up 1.3% today. Don’t know why. We’ve been buying KRE, which was off only 0.17%.

Nevertheless, the market dropped today as much as 180, recovering to minus 122 on not-to-bad news today. If this pattern continues–falling on relatively good news–we will act to protect our capital by buying in-the-money puts or dropping weak ETF’s.

 Gold is over–Check this ugly chart of GDX. It broke below a wedge, and is close to losing major support.

Regards,

Paul Accampo