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C'est la vie. Another dip in the stock market has been followed by another violent "V" bottom. One minute the S&P 500 is down 5 percent on fears of, well, just about anything and everything, and the next, the market is back to flirting with all-time highs. That's just the way the game has been played in 2014 as anyone looking to reduce their exposure during a potential crisis has been made to look pretty silly within a couple days.

As has been the case for some time now, the most recent dip in the market was accompanied by what appeared to be the makings of a potential crisis. While just about everyone in the game was fooled by the credit crisis of 2008, no one wants to get fooled when the next portfolio-crushing crisis occurs. As such, traders are constantly talking about the next bubble, the next crisis, and the next big problem.

However, as has also been the case for some time now, once a central banker starts talking nice in front of a microphone, traders fall all over themselves to get back into the liquidity trade.

S&P 500 - Daily

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This time around, we have the oil crash - which is ongoing, by the way. While stocks were enjoying an impressive joyride to the upside over the past two days, crude was continuing to move down and closed at a fresh low yesterday.

As you will recall, the global macro crowd has been telling us that the massive decline in oil prices was supposed to usher in a deflationary environment, which would be a very bad thing for Europe, China and Japan.

We have also been told that the oil crisis has created instability in the emerging markets. More specifically, Russia has been punished unmercifully - both in terms of its currency and its stock market. And as the thinking goes, the problems in Russia could easily spill over into the rest of the emerging markets - ala 1998.

So, Is Everything Fixed Now?

However, with Janet Yellen swapping "patient" for "considerable time" this week and the Russians throwing some cash at the ruble, the action in the S&P 500 would suggest that the so-called crisis is now a distant memory and happy days are indeed here again.

Oh, and just two days off of the recent bottom, articles are once again cropping up calling for S&P 2200 by year-end, which is only seven-ish trading days away.

Thus, the question of the day is if everything is "all better" now that the millisecond trend-following algos and the short-covering efforts have pushed the market to its best two-day gain since this great bull market began in March 2009.

To be fair, it is easy to see how some reassurance from Yellen's group might calm the markets - especially after a swift pullback of nearly 5 percent. In short, the FOMC statement basically promised not to do something stupid like raising rates too soon. And the bottom line here is that such reassurances mean that the liquidity/carry trade can continue into mid-2015 unless, of course, the economy gets jiggy in the coming months.

So, with yesterday's data clearly coming in on the punk side, traders were feeling better about the idea that their currency games are likely safe for six months or so.

The Fly in the Ointment

While no one wants to be a party-pooper when stocks are soaring, there is at least one fly in the ointment here - okay, maybe two.

The problem is that oil hasn't rebounded yet to any meaningful degree. No, "Texas Tea" continues to fall. And while a reflex bounce is likely to occur in the near-term, the fundamental issues surrounding the crash in oil prices have most certainly not been fixed.

U.S. Oil Fund ETF (NYSE: USO) - Daily

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Then there is Russia.

Yes, the Russian Central Bank did surprise the markets by raising rates 6.5 percent (to 17 percent) this week. Yes, the Foreign Ministry did spend a bunch of its "excess reserves" on supporting the ruble on Tuesday. And yes, Russian President Vladimir Putin did tell us yesterday that everything will be fine - within two years.

Market Vectors Russia ETF (NYSE: RSX) - Daily

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The question is if the actions taken by Russia and Putin's cheerleading will be enough to "fix" Russia? If not, then the fears about another emerging markets crisis will likely resurface at some point.

So, while 'tis the season to be jolly and it does appear that Santa arrived at the corner of Broad and Wall right on schedule, this may not be the time to throw caution to the wind.

Sure, trying to manage risk in the stock market lately has been a frustrating experience this year (risk? what risk?). But it is important to keep in mind that the current bull market is now 5.75 years old and that at some point, the bears will find a reason to be and come out of hibernation. So, the bottom line is this is not exactly the time to decide that "buy and hope" is the way to go from here on out.

Happy Holidays to all!

Turning To This Morning

The mood in the markets this morning remains buoyant. Asian markets followed Wall Street higher. There is more talk of QE in Europe (although it is being met with mixed reviews across the pond). Also in Europe, German confidence increased this month. And oil is moving up a bit, raising hopes that crude may be in the process of stabilizing. So, as might be expected, futures in the U.S. are pointing to a higher open on Wall Street. Therefore, it looks like the traditional Santa Claus rally has indeed arrived - right on schedule.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +2.39%
    Hong Kong: +1.25%
    Shanghai: +1.68%
    London: +0.45%
    Germany: -0.58%
    France: -0.53%
    Italy: -1.36%
    Spain: -1.06%

Crude Oil Futures: +$0.46 to $54.57

Gold: +$2.60 at $1197.40

Dollar: lower against the yen and euro, higher vs. pound

10-Year Bond Yield: Currently trading at 2.203%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +12.27
    Dow Jones Industrial Average: +70
    NASDAQ Composite: +19.53

Thought For The Day:

We do not quit playing because we grow old, we grow old because we quit playing. -Oliver Wendell Holmes

Positions in securities mentioned: None

Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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