Over the past few trading days, most of us are aware that stock markets have been showing signs of life. In fact, one can see from the charts below that key resistance levels have been taken out. However, it is noteworthy that these breakouts have been accompanied by relatively weak volumes and money flows. Thus they could be nothing more than a "sucker's" rally. The central banks are more than aware that fund managers and investors will be looking very closely at trading in January. As respected analyst Paul Hickey recently stated..."It would be disheartening if stocks start 2009 like they did in January 2008, when the S&P 500 index slid 6.1%. From a psychological standpoint, investors will start thinking, 'Uh oh, more of the same."

Therefore, it could be that the central banks are behind this recent equities breakout in an attempt to paint market perception. As noted this past Friday, both the USD and the DOW soared while the economic data (ISM-Manufacturing) was horrific. There was also a time when the DOW fell when crude surged but not on Friday. Lastly, gold was held in check all day below the key breakout level of $880. These observations are the signature of PPT intervention.

So technically, stock markets may be breaking out but fundamental conditions are worsening. On Monday, we get motor vehicle sales for December and they will be bad. Shortly after, earnings season begins and it will no doubt be very very poor. The traditional corporate reaction to falling earnings is job cuts so expect major layoffs to be announced in January. Retail should also fall off a cliff after the poor results of the Holiday Season are released. Furthermore, the U.S. housing market should continue to deteriorate as Alt-A resets begin to enter the lion's den. All of this will ensure the mainstream economy continues to weaken, which will act as a drag on general stock markets.

The final nail in equities could be today's move by Israel to send in ground forces throughout Gaza. This likely ensures a longer term conflict and thus a higher probability of Iran entering the conflict. Perhaps that is the ultimate goal of the West but stock markets generally do not do well during times of war. This conflict will support crude oil, which also puts a drag on general stock markets.

Next week and the remainder of January will be crucial for trading in 2009. The new Obama administration will have an effect but it may only be temporary as reality may displace high hopes quite quickly. Unless central bank suppression rises up a few notches, gold and silver should have rising support throughout the year. And as most of us know, PM shares are extremely oversold and due for a major rally.

It will be exciting - VHF

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Chart 1: SPX breaking above key resistance area

Chart 2: Same SPX chart showing weak money flow and low volume

Chart 3: S&P/TSX breaking above key resistance areas

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