The market rally is in full effect and when the music ends it will be hard to find a seat. 

For now, enjoy the music and remember that it will end!  Currently an initial move lower of 5% is well overdue but I think we could see 1275-1300 on the S&P 500 later this year.  From there -  watch out below!
In addition, I also want to once again stress that the orthodox Dow theory primary bullish trend change that occurred in conjunction with the advance out of the March 2009 low still remains intact. However, it is very important to understand that this bullish primary trend change continues to operate within the context of a much longer-term secular bear market in accordance with Dow theory phasing and it is for that reason in part that I continue to say that this is a bear market rally.
I have been asked by some of the readers here why I continue to say that this is bear market rally. In the late March article, I discussed the historical bull and bear market relationships, which is but one reason for my view on this rally. Another is value, which is another aspect of Dow theory that few understand. However, this is something that E. George Schaefer, the great Dow theorist of the 1950's and 60's stressed as does Richard Russell today. From a Dow theory perspective, all secular bear markets have ended with stocks at great values. A measure of that value has historically been seen with the dividend yield being roughly equal to the PE ratio. In 1932 the yield on the S&P 500 was 1.50 with a PE of just under 10. At the 1942 low the yield was 8.71 with a PE of 7.3. In 1974 the yield was 5.9 with a PE of 7.24. Even at the 1982 low the yield was 6.2 with a PE of 6.9. Well, at the March 2009 low the PE was 23.77 with a dividend yield of 3.58. At the October 2002 low the PE was 29.95 and the yield was 1.98. As you can see, neither the 2002 low nor the 2009 low represented the great values that have been seen at previous secular bear market bottoms.
It is the valuations aspects of the market along with the normal phasing and bull and bear market relationships that are at the core of my belief that the bull market topped in 2007 and not in 2000. It is also my belief, based on my studies of Dow theory, that the rally out of the 2009 low will ultimately prove to be the rally separating Phase I form Phase II of the ongoing longer-term secular bear market. For what it's worth, I have also discussed this very topic with Richard Russell and he confirmed this viewpoint.
Another issue that I want to briefly touch on is commodities. I continue to believe that the "one market" effect of the liquidity driven mania that began at the 2002 low pushed everything into a bubble. Housing peaked first in 2005. Equities followed with their peak in October 2007 and commodities finally pushed into their top in July 2008 in accordance with my statistics surrounding the 3-year cycle, which I called perfectly in accordance with my statistical findings. Anyway, from these liquidity driven high points, the markets all pretty well bottomed in sync with one another in or near the March 2009 timeframe. Since those early 2009 lows, I have said that the advances we have been seeing have likely been bear market rallies and that I ultimately expect a deflationary outcome in association with K-wave winter. But, at the same, understand that this is not some stubborn belief that I'm clinging to just to be different. I've learned not to rule out anything and I will ultimately let my statistical data guide me once again.
Now, with that all being said, 2010 should be the year that the great inflationary/deflationary debate should be settled or at least begins to be settled. Reason being, there are significant structural and cyclical events that will be coming together later this year in commodities, gold, the dollar, equities and even bonds. The outcome as we move forward into these statistical and cyclical crossroads will without a doubt be key. With commodities, the longer-term cycle of importance is the 3-year cycle. In 2008 I called the top of the commodity bubble simply following my statistical data and by watching and understanding the meaning of the "DNA Markers" that I have identified and that have historically marked significant tops for commodities in the past. A bit later in 2010 commodities will be moving into another of these statistically important windows and these details are monitored and discussed in the monthly issues of Cycles News & Views. My hunch is that price will set itself up once again in accordance with the statistical "DNA Markers" that have occurred at all major tops. If so, this should coincide with the tops of the bear market rallies that began at the March 2009 lows, the decline into the Phase II bear market and the return of the deflationary forces of K-wave winter. On the other hand, if price does not setup in accordance with these statistical hurdles and "DNA Markers" then that in turn could be setting the stage for the inflationary scenario to come to fruition. In either case, I will simply watch the statistics and let the market tell me how things set up. As we move further into 2010 these statistics will be extremely important as to which scenario unfolds.
By Tim W. Wood