With weak earnings from the banks and minimal economic data to embrace, I took a bearish position yesterday.

I argue in favor of a bullish advance past 1301 resistance and this week could very well be the start of that move. 

The euro has fallen sharply lower by 3% this week, which has corresponded to a similar rise in the dollar. The rise from the dollar brought havoc to the commodities and stock market alike.

Wednesday's large decline was the result of only one thing: the higher interest rate on Italian debt.

Bank of America (NYSE: BAC) missed earnings estimates badly, and tech behemoth IBM (NYSE: IBM) came in light on sales.

The latest rally in the market was initiated with optimism that Europe would come up with a plan, quickly, that increases investor confidence, avoids default and recapitalizes banks.

While I don't view Greece as an issue, a slowdown in Europe would be a big deal.

There is technical analysis, there is fundamental analysis and there is sentiment analysis.

The market zoomed higher yesterday and volume levels rose. The bullish action was the product of two things.

First, SPX has extremely strong support at 1115 and 1100; the bears need a Greece failure, or something similar, to take the index below that support zone.

Secondly, rumors from reliable sources, like Geithner, have surfaced that European governments will step up their response to their region's debt crisis.

The market recovered a little yesterday morning. Volume was not spectacular. And SPX found resistance near the predicted level of 1155 until the bulls finally broke it in late afternoon trade. Technology was the noticeable laggard while financials surprisingly showed leadership.

The boost to financials came from value guru Warren Buffett. Yesterday, the stock king publically announced he would buy back Berkshire stock. The move from Warren Buffett was unprecedented and showed what he thinks of stock valuation - especially for the banks.

The market collapsed last week. For the past month, I've mentioned how difficult it will be for SPX to break the 1250 hump. And during the first half of September the bulls made a desperate attempt to hurdle the 1250 level.

The bulls managed to bring the SPX within a few percent of 1250 just hours before Ben Bernanke was scheduled to speak. And clearly, the bulls wanted (and were ready to get) QE3. But instead of QE3, Bennie and the Feds announced "Operation Twist."

And investors in the market shouted "SELL!"

The market continued its incredible rally higher on Friday. Volume increased as the bulls tacked on another gain and the SPX finished 5% higher for the week. More importantly, SPX was able to rally past 1175 again.

After the burst past 1175, buyers wasted no time and took the SPX all the way up to 1220 resistance. But much like in the past, 1220 could not be broken.

Over the past month or two months I have stayed bullish, but at the same time I refused to believe SPX could rally past 1250 without government assistance.

The market slowly moved higher yesterday. The indices actually started deep in the red. But a midmorning ride down to 1197 stabilized SPX and it rose from there to eventually hit 1220 resistance by late afternoon.

The SPX slid nearly a percent after it tagged 1220 resistance, and the decline occurred in about five minutes. While the bulls were not able to overcome 1220 yesterday, they likely established 1197 as a support zone again following the morning bounce.

The market blasted higher yesterday. Volume soared as the indices climbed over 3% in a persistent rise. The accumulation was great as technology led the charge higher. Additionally, the indices were able to put in a big day without the help of a falling dollar which was a positive sign of market strength.

Yesterday I wrote about how the bulls needed a big day and also how I thought the bulls were going to get it. The SPX was near a sturdy support zone, and a bottoming pattern was in place. All the bulls needed to do was pump the market higher and then SPX would be on its way to 1197.

The market activity could not have gone worse for the bulls yesterday. On high volume, the indices slumped lower from the open and into the close. The dollar rose, which added pressure to the energy sector and the technology sector displayed weakness as well.

Most of the big U.S. banks held up well in yesterday's decline, but those petty gains could not turn the market back around.

The worst part about yesterday's decline is that the market was supposed to finish higher. Over the weekend policy makers worked-out the framework for a successful debt deal. Many investors believed that the large decline last week was the result of a potential U.S. default...

The market lost its early gains yesterday and the indices finish red. The decline was mild and followed a very bullish session on Tuesday. Volume was lower than I expected given the high volume session from AAPL.

Despite the dull session, I am still bullish. It looks like SPX is consolidating at 1332 resistance before its next move, which should be a rally to new highs.

The market is only a few days into earnings season, but thus far the results have been quite mixed. Corporate profits, and to a certain degree, revenues, grew at an above average pace. But margins and management guidance have generally disappointed.

The market lost some ground to the bears on Friday, but for the week it was flat. The bears could not take out 1250 support and the bulls could not take back 1301 resistance. And those will remain the prices to watch until SPX can break out of its range.

But I am not so certain that a break-out from that range will occur soon. When you think about it; the economic news is slow this week - aside from a few CPI and GDP reports in Europe. But overall there is no major economic news set to be released this week. And I think you would need major news to break SPX out of this range. Then the following week is holiday shortened and also unlikely to provide a major move since earnings season starts shortly after the week concludes. So without catalysts, the market may stay stuck in a 50 point range for the next few weeks.

And that does not bode well for the bulls. In the past, earnings season has been reason to celebrate. In fact, for the past two years, earnings season has been great to stocks. But based on results by ORCL and MU last week, two big tech companies, this earnings season could be a disaster. And the worst part about the ORCL and MU reports was that the releases were not all that much different from reports the companies gave quarters ago. By all accounts the quarterly results were fine, not great, not bad, but the stocks sold hard.

The market put in back-to-back down sessions as volume soared. The bears appear to be back and have shown no mercy as they attacked technology and small caps. The bears must continue their savage selling and take out support levels across the board this week. If sellers cannot muster the strength now, then expect an equally sharp rally from the bulls next month.

The market had its first bearish day in a long time yesterday. Volume spiked across the board and every sector was crushed by almost 2% - only the energy sector and utilities posted any gains. Additionally, the dollar rallied and bond yields declined, which means historical correlations may begin to come back.

But before you continue reading, understand that I am not calling a top. I do believe yesterday's activity, which was potent selling, will be a short term rally high. But the bears need to do a lot more than that to convince me they are prepared for more ominous declines.

There is an article at Slate.com making the rounds in the financial press. Warren Buffett's partner at Berkshire Hathaway, Charlie Munger, penned a parable about America's rise and fall, called "Basically, It's Over."

The article details how a young, fiscally responsible country called Basicland got caught up in the "casino" of speculation, ignored its export economy, and essentially went bankrupt.

While perhaps a bit simplistic, Munger's piece is intended as a warning about rising government debt and an over-reliance on risky financial speculation. This speculation is intended to make up for the lack of manufacturing as a major component of GDP.

Some of the statistics he throws out are a bit scary. He says "The winnings of the casinos (investment banks) eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos."

I haven't verified those numbers, but they certainly suggest an economy that's out of balance.

As I read Munger's article, I thought immediately of yesterday's story about how Goldman Sachs and other investment banks may knowingly used mortgage-backed securities and CDOs to set-up AIG.

I'm sure we all believe it is any company's right to take advantage of another company's weakness. At the same time, however, it seems to me that at some point, a company must ask itself "at what cost?"

In the case of the housing bubble, investment banks knew the mortgage-backed securities they were selling were junk. Not only did they set AIG up for a fall, these casinos, as Munger calls them, essentially cannibalized America to make a buck.

Munger's answer? Listen to Paul Volcker. Keep banking separate from investing. And "…produce and sell items that foreigner's [are] willing to buy."

Let's hope that our elected officials are not so ensnared in the casinos' tentacles that they can make the changes that America needs.

It's pretty hard to ignore the big news this morning – the Fed hiked the discount rate by a quarter point to 0.75%. Now, this is different from an interest rate hike (known as the federal funds rate). The discount rate is the amount of interest the Fed charges banks for direct loans.

The move is designed to make it more expensive for banks to borrow from the Fed, thereby encouraging them to borrow from private sources.

Now, the Fed said in its last meeting that this move was coming. And I'm actually glad to see the Fed make a "surprise" move. By that I mean the markets got very accustomed to the Greenspan policy of only moving rates during policy meetings. That gives the market time to adjust ahead of the meeting. Some argue that strategy decreases the effect of the move.

With this surprise move, Bernanke has taken the market by surprise and forced it to adjust on the fly. That's actually a good thing. I think it's important for the Fed to show that it's proactive.

What's more, the Fed is also showing that it is intent on removing the emergency liquidity measures it took in the wake of the financial crisis. This is an important step toward addressing fears that cheap money will spark inflation.

The biggest takeaway from this move is that the Fed is showing confidence in the economy. The Fed clearly believes the economy is strong enough to start walking on its own, without the crutch of cheap money.

Of course, the Fed has also reiterated that real interest rates, or the fed funds rate, will stay low for an "extended period of time." And most still consider that to mean there will be no interest rate hikes until early 2011. And we can look at today's Consumer Price Index (CPI) to see why.

Prices at the consumer level rose just 0.2% for the 5th month in a row. Take out food and energy, and consumer prices actually fell for the first time since 1982.

The reason is pretty clear: unemployment. With less demand, companies can't raise prices. So clearly, the Fed can't raise rates until the employment picture improves.

It's no surprise to me Europe is experiencing weaker than expected growth. In fact, in Wyatt Investment Research 2010 Economic Predictions and Investment Outlook, I wrote that it was likely that Europe enters recession again. And when we read that Euro-zone GDP growth for the 4th quarter actually declined 2.1%, and sequential growth was just 0.1%, it appears that recession is more than just a possibility for Europe.

The contrast between the 4th quarter in the U.S. and Europe is about as stark as it gets. And it's clear to me that the main difference is government stimulus. For instance, French car-maker Renault expects car sales in Europe to fall 10%. Car sales in the U.S. have been pretty good, and the cash for clunkers program helped. There should also be no doubt that government support for the housing market has helped.

There is also an interesting parallel between countries like Greece or Ireland and states like California and Nevada. No doubt, if California was a country and not a state, it would be on the list of countries with sovereign debt problems.

Fortunately, California's problems are somewhat masked by the overall relative strength of the U.S. economy, but that won't last. Debt issues in certain states have the potential to become a real drag on growth.

My Washington DC office has been vacant all week. It's amazing to me that record snowfalls have turned my DC staff into shut-ins (and closed the government for the third day) while life goes on at its normal pace here in Vermont.

The snowstorm that's crippled the mid-Atlantic region will certainly have an impact on 1st quarter GDP. I would expect that 1st quarter retail numbers will be pretty bad. But there could be some good numbers for restaurants coming. The rally in the dollar over the last few weeks has lowered food costs. And I also think that once we see a thaw on the Eastern seaboard, people will shake off their cabin fever with a night out. I know I would...

I'm really on the fence with this one: did the Obama administration purposefully wait to attack the unemployment situation? Or is it just dumb luck?

I ask because it's clear to me that now is the time to strike. If stimulus money had been used at this time last year to help the unemployment situation it wouldn't have worked. Corporations were still in the process of cutting costs to meet lower demand. And at the time, demand itself was a moving target.

Now that the economy has stabilized, demand is returning and corporate earnings are on the upswing. So corporations are starting to hire again. New jobless claims are down again, as are continuing claims. The unemployment rate has dropped, and on-line employment ads are increasing.

The Conference Board, a non-profit global business organization, reported that online job demand is rapidly rising. According to the Conference Board, the total job vacancies advertised online today is over four million, or the same level as November 2008.

Seems to me, the added perk of government incentives, like a payroll tax holiday or tax credits for new hires, could give companies the final push needed to add employees.

What a great Super Bowl game! I have to admit, I was pulling for the Saints, but mainly because of what the Saints mean for that city. I'm sure we all remember the horrible aftermath of hurricane Katrina. The very existence of New Orleans was in question. The Saints considered moving, and I recall suggestions that only the French Quarter be saved and made into a corporate convention amusement park.

Of course, that would have been an absurd commercialization of a proud and rich heritage. That New Orleans has come back to resemble the city it was before Katrina is nothing short of miraculous, and now the people of New Orleans have a Super Bowl trophy to crown their achievement. Congratulations, New Orleans and the Saints.

It's tempting to extend the metaphor of New Orleans to the United States as we rebuild after the financial crisis. Of course, I have no doubt that we will recover. But there will likely be no single event that crowns the recovery like the Lombardi Trophy does for New Orleans.

And besides, we're investors. It is our desire to be properly positioned for a growth in stock valuations, all the while avoiding the pitfalls of overvalued stocks and worsening economic conditions.

Clearly, investors have been pondering the potential of weaker economy as some stimulus policies end, Europe faces debt problems and China moves to slow its economy. Bloomberg reports that investors pulled $9 billion out of global equity funds during the last week of January. And investors have bet heavily on an extended sell-off as evidenced by huge volumes of put option activity.

At the same time, 73% of S&P 500 companies have beaten 4th quarter earnings expectations. That's the best performance since 1993. Strong earnings, coupled with the recent 7.3% decline, have left the P/E for the S&P 500 at 18, down from 24. The forward P/E, based on future earnings expectations, is below 13.