July 2010 Monthly Review:

The major market indexes positively reversed, ended near their highs for the month of July, and recorded one of their strongest monthly gains since the March 2009 bottom as the US dollar plunged and fears of a global economic slowdown eased. For the year, the Dow Jones Industrial Average, the S&P 500 Index and tech-heavy Nasdaq Composite are collectively in positive territory after August was started off with with considerable gains.  The market is in a confirmed rally that began on the July 7, 2010 follow-through day (FTD), and expanding leadership (new highs) bodes well for the bulls.
Before we address the current market outlook, it is important to step back and put the recent action in proper context. Since the March 2009 bottom, the major averages have experienced explosive gains on the simple premise that the global economic recovery will be robust. That notion helped the benchmark S&P 500 Index rally +83% before reaching a near-term top of 1,219 on April 26, 2010. Since then, notions of a robust recovery have come into question, especially due to the ominous debt levels in several European nations and each of the major averages are down approximately -10% from their 2010 highs. The euro, which has also enjoyed healthy gains since March 2009, topped out in December 2009 and has steadily fallen during the first half of 2010 but rallied smartly in July. Looking ahead, it is imperative to monitor the direction the euro is heading in order to better gauge investors’ world-wide collective appetite for risk.   
Bullish Case:
History shows us that most bull markets last between 18-36 months before they fail. Therefore, the fact that we are only beginning our 16th month bodes well for this somewhat “young” bull market. It is also somewhat encouraging to see nearly every government across the globe step up and unanimously infuse an unprecedented amount of capital into the global economy. This unified action saved the global economy from entering a deeper recession and laid the foundation for this massive bull run. On average, central banks around the world are still keeping rates near historic lows to help spur economic growth, while a few have begun raising. As of this writing, it also appears that the major averages are on their way up after checking back in to test support near their 2010 lows, which could in the short-term be considered a stabilizing sign.  
Since that low, the benchmark S&P 500 Index has pulled back a handful of times, each mild, not exceeding -10%, making the latest -17% pullback from the April 26, 2010 high (1,219) the most severe. So far, this tested the limits of a normal pullback, because a -20% pullback defines a bear market, and may be a temporary correction, albeit a steep one, before the bulls again return and resume this powerful uptrend. A characteristic of this new bull market and others is that every time the market pulls back the bulls promptly show up to quell the bearish pressure and defend support. The question is whether the bulls will be able to send this market back into new high territory.
Bearish Case:

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