Don't Trust Monday Morning's Good Vibes

However, there seems to be no reaction to this development, which may indicate how strong the economy in China really is. The comment from the premier is reminiscent of Alan Greenspan's famous "irrational exuberance" speech, which did have a minor impact at the time when it was made on Dec. 5, 1996, but came more than four years before the market eventually did top out. The obvious lesson is that strong markets tend to have momentum, and chairmen and premiers don't alter the course of things very easily.

For the moment things look pretty good, but we have seen this story on previous Monday mornings, and the focus will quickly return to the U.S. economy, subprime mortgages and the Federal Open Market Committee interest rate decision that is due out Wednesday afternoon.

Some are looking for the Fed to help out the bullish cause with an interest rate cut in the near future. The thinking is that the economy is slow enough and the subprime mortgage issue dire enough for the Fed to overlook the fact that core inflation is still substantially higher than what it is targeting. That discussion is going to dominate trading this week and is likely to be the driving force behind the action.

For the technically inclined, there is little question that the market is troubled right now. We have been struggling to put together a bounce after the second sharp dip lower and on Friday it looked like the bulls were running out of juice. They are starting off the week with renewed vigor, but we will have to see whether they have the fortitude to keep it going. A strong Monday open isn't a good reason to believe that things are suddenly turning up for good.