Indeed, it's my belief that if the market had been above the 920-930 level prior to the Alcoa (AA) earnings kickoff, Monday’s session would have taken the market to or past the 950 level. And Wednesday’s gap up session (after the Intel (INTC) earnings blowout) would have catapulted the market well past that key resistance level in a breakout that would have ultimately propelled the market towards 1,000 and beyond.

But it wasn't to be. Major technical damage was done to the market as it broke down below 920 and 900 all the way to 870. As I outlined here, I was a very aggressive buyer, using full leverage with the S&P at 870, expecting positive earnings to spark a sharp rally off of oversold levels. However, from the 870 level, the market will have spent an enormous amount of energy to simply try to rally back to the recent highs around 950.

Many market participants bought into this market at levels at or around 920-950. After the major scare that took markets to 870, many of these Johnny-come-lately traders and investors will be relieved at the opportunity to bail out at break-even levels. Today, after a substantial scare and the shift in psychology outlined above, the 950 resistance looms much more formidable than it did a few weeks ago, and the market is likely to exhaust itself at or around this level.

I see one major risk to this technical and psychological outlook: Almost nobody seems to believe that the S&P 500 can rally significantly beyond 950. Indeed, various sentiment indicators are flashing levels of pessimism not seen since March of 2009. And cash levels remain extremely high.

This could conceivably lead to a short-squeeze type of situation. Ultimately, though, such a move up -- if it were to occur -- will be doomed. In the end, it's far more important that the flow of fundamental data will be turning from marginally positive to marginally negative.

Medium-Term Prospects

Massive monetary and fiscal stimulus will kick in, in the second half of 2009 and 2010 --which should prop up the US economy, in relative terms. In addition, the US financial system is actually in relatively good shape after recent capital infusions and massive restructurings and refinancing at lower interest rates. Furthermore, many US companies are global leaders. Companies such as Apple (AAPL) won't only take share, they're developing new products that create new sources of demand. In addition, given the flexibility of the regulatory and labor regimes in the US, the ability of US companies to restructure and adapt to new challenging circumstances is unparalleled. Thus, in relative terms, US equities will do okay.

Nonetheless, it will be difficult to make money in US markets in late 2009 and 2010. I see US markets languishing, probably trying to find a range somewhere between recent highs and the March lows. Perhaps that range could be somewhere between 750 to 850, with short forays outside such a range. Technology stocks should outperform in a big way while energy- and commodity-oriented stocks should suffer steep declines. Sector and stock selection will be the name of the game in the second half of 2009 and 2010.

The best opportunities to make money may be on the short side in Europe, Asia, and emerging nations -- for those that know how to navigate these markets. The currencies and equities in these markets are little understood -- particularly in the US -- and their prospects are vastly overrated.

Conclusion

In sum, after a positive earnings season, there's little to further catalyze the market to the upside. To the contrary, there are a number of factors -- many of them from abroad -- which, taken together, should apply considerable downward pressure on global financial markets throughout the remainder of 2009 and 2010.