For those investors who may not follow indices closely, the 8,000 level has psychological but not technical support, the latter of which measures such things as the number of investors who are buying/selling, whether investors are committing new money to the market etc. The bulls argue that the worst news is behind us, and that government stimulus, fiscal and monetary, will both stabilize the financial system and get the U.S. economy moving again. Conversely, the bears argue the worst economic news stemming from the financial crisis is yet to come.

Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision/conclusion regarding where the Dow is headed, near-term.

Technical Indicators: Neutral.

Fundamental Indicators: Bearish, but with selected Bullish 'green shoots.'

Monetary Policy: Officials are doing everything they can to stimulate growth. Bullish. The Fed will continue to use quantitative easing to ensure that the credit markets and key institutions remain liquid.

Fiscal Policy: More fiscal stimulus is on the way, in both the U.S. and aboard. Bullish. The Obama Administration has also announced an up to $1 trillion plan to remove toxic assets from the financial system. The administration and the Fed also remain at-the-ready to intervene in any institution whose failure would create systemic risk.

Credit Markets: Recovering, but still strained, with still too much interbank distrust/fear. Not enough banks are providing credit to small businesses and consumers are having a hard time obtaining credit. Bearish.

Conclusion: The view from here argues that the outlook for the U.S. stock market is Neutral for the next three months – the summer months of June, July, and August. Given the above technical and fundamental indicators, and the seasonal reduction in money flows and trading volume in the summer months, pull-backs in the Dow and S&P 500 are likely to occur. Hence, the current stock market is highly selective, and the bias is toward deploying capital in only those clear-winner, compelling stocks. Experimental and high-risk plays are not advised. Further, should bullish economic data occur in the upcoming summer months, that would support the Dow above 8,000, but if there is an absence of positive data – 'green shoots' – or even luke-warm data, a strong argument can be made that the Dow will retest 8,000 and then 7,600-7,400 this summer.


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Financial Editor Joseph Lazzaro is based in New York.