What we have seen for the past couple of months is what I call a “stealth rally”. It’s happened before. I don’t care about anyone’s theories about how volume is supposed to act. Relative to market indexes, conventional theories aren’t worth a damn.

These steady pushes higher on low volatility shows confidence and persistence of the buyers, and the low volume means nothing more than the fact that most investors and traders are uncertain and sitting on the sidelines. There aren’t any wild swings or large setbacks to get their juices flowing. But wait until they start piling in. The volatility will shoot up and momentum will begin to slide, except for a few desperate buying blowoffs. Then you’ll have your top.

And it doesn’t matter where the money is coming from. Trend is all that matters, up, down or sideways. It’s all tradable.

And here’s another tip: In an uptrend, if there’s a good sized pullback in the indexes on high volume, that’s not necessarily bearish. If an important support is broken simultaneously, then yes. If support hasn’t been broken, then it’s bullish because it shows that smart buyers are stepping in. Low volume means the potential smart buyers expect or need lower prices. Increased volume after a support break is generated by dumb buyers. Declining volume in a down trend means the dumb buyers are nearly done taking their losses, but it isn’t bullish until prices consolidate and reveal support areas, indicating smart money is coming in.

Well said! I sure wouldn’t be buying right here, right now. But sometimes the Big Worry overhanging the market (such as the imminent Greek default) ends up being already discounted.

On the eve of the first Gulf War in January 1991, opinion was nearly unanimous that crude oil would explode higher and stocks would collapse. Instead, the exact opposite happened. 1991 ended up being a strong kick-off year for a bullish decade.

Similarly, Greece’s default will be a nasty shock, and may take some European banks down with it. But it also will lead to a surge of official liquidity, which could gravitate to stocks in the absence of any better place to go.

I wouldn’t front-run this scenario. But on the day Greece pulls the plug, if markets fail to decline as sharply as expected, then buyers will step in and propel them higher — much to surprise of those expecting Gotterdammerung and the end of western civ.

Thanks for your excellent sentiment report, Guy.

Dr. John Hussman, siding with ECRI’s Achuthan, insists in his weekly commentaries that a market downturn and economic recession are quite likely in the next 6 months. And he’s got the back-tested results to buttress his case.

Meanwhile, Paul Kasriel at Northern Trust writes in a recent report posted at Safehaven that commercial bank credit was finally expanding at a healthy rate of 5.1% in the second half of 2011 … and consequently, U.S. GDP will grow by 2.7% in 2012.

Both present eloquent, thoroughly quantified theses … yet one will be proven wrong.

Up here in the peanut gallery bleacher seats, I can only observe that forecasting GDP seems to be harder than forecasting markets. The steep upward-sloping yield curve says ‘full speed ahead,’ while surging oil prices and a potential blowoff top in AAPL threaten to yank the carpet out from under shaky growth momentum.

It boils down to the old conundrum of what happens when an irresistible force slams into an immovable object. Flip a coin, I suppose. May the best analyst win!