Keith Springer's  Instablog

There are 3 basic reasons:

1. Interest rates are low and are expected to stay that way – You don’t fight the Fed
2. The trend is rising – You don’t fight the tape
3. Corporate earnings have been stellar and will continue to be – Surprise, Surprise, Surprise!

The first and second are pretty easy to understand. The economy stinks and the Ben Bernanke and his financial puppeteers are throwing everything, including the kitchen sink, at this. The unprecedented government stimulus programs have been able to keep the economy, which so desperately wants to deleverage and rid itself of debt, from going down and rebalancing.

The 3rd is what drives stocks the most in the short term: Earnings. Companies are generating great earnings in this rotten economy by fighting for survival. They hoard cash and strengthen their balance sheets by cutting costs and laying people off. Naturally, it is survival of the fittest, making the larger corporations better able to survive an economy like this, at the expense of smaller less efficient companies. Some will be bought out, some will merge and some will go by the wayside: “The Great Shakeout”. Anyway you look at it; it leads to fewer jobs and a slower overall economy but with very selectively efficient corporations left standing.

What we need now is a little help from Congress on the debt ceiling, and from the European Union to sweep the damn Greek problem under the rug already, before the current earnings high wears off. We all know that they are not solving the problem, but simply kicking the can down the road. Greece and others will default and the repercussions will be enormous. However, hopefully we can get another few months to a year out of their “solution”. That would likely coincide well with the peak in our earnings cycle and very possibly converge for the next financial crises, a veritable “perfect storm”, that will pop the current stock market bubble an bring the inevitable final wave crashing down, the so called “Fibonacci 5th wave”. The causes for this, as well as how to protect yourself are discussed in depth in the much acclaimed new book, written by that brilliant and charming new author, in Facing Goliath: How to Triumph in the Dangerous Market Ahead.

For the time being, earnings will keep the market strong. In fact, all the positive earnings surprises likely means that the peak in the earnings cycle will be another quarter or two away. There will be a time in the near future when you will need to be out of the market, but not yet. Be aware though that the trend has been for a pullback after earnings season ends, so short term traders should take profits once earnings announcements end.