There were several things to feel good about with this week's market action but there are still storm clouds on the horizon.

As our chart of the NASDAQ shows, the index has recovered 33% since its March 9 low and on Thursday broke out of its double bottom base. The gain of over 20% qualifies the index as being in a 'bull' market. The index is now 6% positive for the year.

The number of successful breakouts is steadily increasing as is the quality of gains they are making. Take a look at this report of all breakouts since March 9 and note the number of dark blue cells in the final column - these are breakouts that rose by over 20% following breakout. Our Gold and Platinum subscribers were notified of these winning stocks as they broke out and our Bronze and Silver subscribers were notified on breakout day in our daily email.

The major banks are reporting profits, although this is somewhat illusory since mark-to-market rules were relaxed; they are borrowing from the Fed and FDIC at very low rates of interest and bolstering their balance sheets with tax-payer funds.

Can this rally be sustained? We don't know of course, but bear market rallies of 33% are not unkown.The most famous is the 48% rally from mid-November 1928 to April 1930. Certainly there is cause for doubt that the rally can go much higher.

• Industrial production for March declined 1.5% over February and 12.8% year on year. This is the biggest year on year decline since WWII.
• The Wall Street Journal reported banks could suffer as much as $250 billion in commercial real estate losses and 700 regional banks could fail because of that exposure
• The IMF estimates that global bank losses will be $4 trillion with about half that being in the US. If so, there is more pain to come for the banking sector, although they may not be forced to admit their true losses.
• Results of the bank stress tests will be known shortly. We can expect that there will be a positive spin, but if the results show that some banks are healthier than others, then pity those shown to be weakest. Goldman-Sachs desire to repay TARP funds presents the Adminsitration with a dilemma described in the Goldman exit.
• There is no sign that consumer spending is rising which is a prerequisite for higher earnings and higher stock prices. In fact the savings rate is increasing leading to what JMK called the paradox of thrift. So although there are theoretically more funds available to finance investment, until confidence is restored there will be a scarcity of borrowers.

However, should confidence continue to improve, then we can expect a lot of money currently in cash, bonds and treasuries to pour into the market giving us the mother of all rallies.