BACK FROM THE BEACH

Markets continue to move up with hardly a hiccup - and as one would expect they continue to be overbought-

RSI (2) levels on major indexes as follows:

SPX - 86

DJIA 81

NAZ 88

NDX 85

RUT 88

MID 90

In addition, the VIX is finally heading lower as it sits more than 10% below its SMA 10 which has been a useful sell signal in the past- Of course in the days of 2X and 3X ETF's - it hasn't worked as well-

Why buy options when one can buy those over leveraged ETF-s that don't expire - and don't exactly match the movement of their underlying benchmarks either.

In Barrons- David Rosenberg from BAC (MER) still not a big believer in the rally- these are his thoughts and comments as told to Abelson:

He points out that the two groups that paced the sharp upswing were financials and consumer cyclicals, in which there are, respectively, net short positions of 5 billion and 2.7 billion shares. Which strongly suggests that not an insignificant part of the rally has been provided by shorts running for cover.

He also points out that the Russell 2000 small-cap index is up 36% since the March low, and has outperformed the S&P by some 980 basis points. As David says, "the last time it pulled such a massive rabbit out of the hat" was in the stretch from late November to early January, and the major averages proceeded to make new lows two months later.

Another amber light he spots is investor confidence. Over the past five weeks, he reports, Rasmussen, which takes a daily reading, has seen its investor-confidence index surge 32 points, an unprecedented climb in so short a span. This could be, he suspects, a "fly in the ointment for a sustained equity-market rally."

David has four markers that will signal to him that the economy is finally making the turn and starting an extended expansion. The first is home prices. The second is the personal-savings rate. Marker No. 3 is the debt-service ratio, and No. 4 is the ratio of the coincident-to-lagging indicators of the Conference Board.

Aggregating those four markers, he calculates that we are roughly 44% of the way through the adjustment process. That is a tick up from where we were last month. However, the improvement, he laments, has been very modest and very slow.

We should add that he also stresses that it's critical for both the economy and the market that payrolls stop shrinking. All the talk about jobless claims "stabilizing" is so much poppycock, he snorts. That number of claims, he notes, is still consistent with monthly payroll losses of around 700,000. As with industrial production, which is also in a vicious slump, employment must stop falling before a recession typically ends.

"Call us when claims fall below 400,000," he says, which is his estimate of "the cut-off for payroll expansion/contraction."

Until then, he warns, "the recession will remain a reality. Rallies will be brief, no matter how violent, and green shoots are a forecast with a very wide error term attached to it."

A few quick links;

VIX+MORE on capacity utilization;

The usual great stuff from BESPOKE;

The magic at Citi;

How long before this hits the radar big time?;

Best of luck to Alpha and Upside;