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The rally since the summer lows has been driven by several factors: 

1) Fast money rotation away from energy and materials, and into high beta names like tech and in particular semiconductors;

2) An excess of cash sloshing around chasing performance;

3) A dearth of new issues and decreasing share count, fostered in part by record-setting stock buybacks.

A rally can progress over the short term, with increasingly poor internals, due to these other factors. Eventually, however, the  market's internal health catches up with it, and the inevitable correction occurs.

John Hussman has reviewed some of the recent internals, and he gets this precisely correct: The slowing economy will eventually pressure corporate revs and profits, and the enthusiasm for the present race towards the May highs will be replaced with something, well, less enthusiastic:

"Wall Street analysts and business reporters remain enthusiastic about the idea that a slowing economy will slow inflation, that profit margins will remain high (despite evidence of rising wage pressures) and that a Federal Reserve “on hold” will translate to higher valuations. Last week's inflation data was clearly hostile on import prices (+0.8%) and export prices (+0.4%), but “in-line” for the CPI (+0.2%). No positive surprises, but the benign CPI number did buy some time for the “Goldilocks” crowd. Until the data counter the “inflation has turned” thesis (which I expect, but our investment stance does not require), we have to allow for the possibility that investors might speculate on hopes of a “soft landing.”

No tmuch to disagree with there.

 Here's the graphic depiction (as of 9/18/06):

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Market Breadth (A/D Line)
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Wmc060918a

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Common Stocks vs All NYSE (Bond funds, ADRs, etc.)
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Common_only

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Consider the NYSE volume -- hardly impressive:

NYSE (6 months)
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Nyse_921

A combination of unfavorable valuations, unfavorable market internals, and weakening overall economic trends does not typically bode well for the near future . . .

Source:
A House Built on Sand
John P. Hussman, Ph.D.
September 18, 2006

Source: The Internal Strength of This Market Is Absent