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At some point this week the stock market indexes could reach a moment of truth on their respective stock charts. Last week we wrote about possible downside support levels. Well, we are within spitting distance of each.

Pay close attention to how the indexes trade as the hit these key levels: NASDAQ – 2200, Dow Jones Industrials are there right now and the S&P 500 – 1000. The routine has been hit support and bounce. As they say “the trend is your friend” - until it’s no longer a trend. If we hit support and sell off, that’s a break in this routine.

There is a lot of worry building up out there. The indexes have turned a deaf ear and a blind eye to the fact that the economic picture and news remain bleak. Unemployment is still on the rise and headed to at least 10%, the dollar is sinking and losing its world currency appeal, Social Security is already out of money, gold is rising, debt is exploding, Greenspan says 2010 will suck, Afghanistan is getting worse, paychecks are flat, future inflation is feared and Chicago lost the Olympics (thankfully as a Chitown taxpayer.)

It is often said that certain stocks are priced to perfection, meaning they have no room for error. Let us be the first to say the stock market, the current congress, the Fed’s and administration’s policies are priced to perfection. If we have one misstep, what bullets are left in the gun to fire? Interest rates are next to nothing, the tax-payer is spent, the government is broke and there are no pennies for a rainy day.

If we have some sort of natural or “manmade” disaster, how do we dig ourselves out of that hole? If these borrow and spend policies don’t work, then what?

As long as we can stay in the uptrend, a lot of these problems can iron themselves out. As the market goes is how the economy usually follows. Here’s to crossing your fingers and hoping the trend is a true friend.

Source: The Market Is Priced to Perfection