Here is my monthly look at key factors that affect stocks:

• US Dollar - I am still bearish on the USD and think we will slide lower towards 82.50 on the index. I am paying close attention to foreign investments and key central bank shifts in their reserves away from the dollar. Coupled with slower US growth, I fear that we are in a tenuous spot here given the need to maintain higher yields to attract the foreign capital and the simultaneous economic pressure pushing down rates. Dealing with the Yen carry trade and its effect on currencies is a huge area of interest for me but I’ll leave that for a longer post.
• Rates - After the 10-year yield hit my previous target, we have drifted lower and I expect that to continue toward 4.55% during the next month. Last week’s problems in mortgage backed instruments due to the subprime component pushed a flight to quality and furthered the downward pressure on the 10-year yield. Given Greenspan’s concerns over a recession this year and a slower growth / lower GDP forecast, I don’t expect longer term treasury yields to head meaningfully higher in the near term. In fact, I am a bit concerned about a worsening of the inverted yield curve.
• Commodities - The broader basket of commodities represented by the CRB has become more bullish than I expected and we are getting to lofty levels in the short term. I am still bullish but am watching these levels very closely.
• Gold - The bounce off my anticipated support around $610 per ounce was steeper than I expected in December. Now that we are heading back into the peak levels seen in 2006, I am expecting some moderation in the short term. I am still bullish so I hesitate to post a new short term support level, but my current view is that the next pullback will challenge $650.
• Oil - I am still bullish on oil, but the technicals and fundamentals are making this one tough to call. Last month, I hadn’t expected to break through $60 this time around but here we are above $61. If I had to rely on technicals alone, I would be looking for a trade down towards $55, but the Iranian nuke issue will likely hold off selling pressure. I don’t like handicapping the weather or geopolitics, so I’ll just readjust my outlook if either of those become more dominant.

Overall, the picture I get from all these market forces is weakness in the United States. That may encourage the “Fed Rate Cut Hopefuls” to get excited but I remain very fearful of the fine line we are walking.