TheStreet.com's Jim Cramer says the rally hasn't been a sham, but a bigger pullback would be reasonable.

I love it! Suddenly it's S&P 900 or bust! Nothing underneath us. The rally revealed as a sham. Even better, a rally in a bear market!

Now we are talking.

A 45% rally in a bear market. Maybe China had an 85% rally in a bear market! We may have had a 7,500-point rally in a bear market since I started trading 30 years ago.

I am even thinking that we have never had a bull market!

The great debate: Have we reached bottom in the financial crisis, or is there more to come? It's a multi-million dollar question.

Reuters conducted a poll on April 21-27 to get feedback form analysts across Europe and the US. The sobering conclusion was that the recession could last a year or two more. Most said that the worst is yet to come. Their findings stated: "Financial and macroeconomic stability are still some way off and we don't yet have the foundation for a solid recovery."

Steve Leuthold earned an astounding 74% return for investors in his Grizzly Short Fund last year betting, as the name would suggest, that stocks were in for a grizzly beating -- which they were.

But now Leuthold has turned bullish, and is predicting that the S&P 500 will hit 1,100 this year -- which would represent an increase of more than 30% from the the current price.

Nouriel Roubini, professor of economics at New York University, was one of the first to predict the collapse of the U.S. banking system and the current financial crisis. Well, he's back in the news with his forecasts.

What does he see in our future? More bad news. The bear market is not over, says Roubini. The stimulus package will slow the rate of contraction, but that will take time. Macro news, earnings reports and financial shocks will be worse than expected.

Technicians continue to bemoan that, despite the oversold internal indicators and sentiment numbers that show record levels of fear, the market continues to sell off. Normally at such oversold levels of the key indicators we should expect a rally -- but not lately.

A rally may be overdue but, so far, all we seem to get is one or two days up and then down again. The mood is best described by a Standard & Poor's market strategist who on Friday said, "We think the market is in desperate need of a washout to at least turn the tide for awhile back to the upside. We have been looking for a counter-trend rally, but all we are seeing are one-day wonders."

So where is the bottom -- or bottoms?

The headlines are terrifying. The jobless rate is the highest it's been since 1983 -- 8.1% -- and it could get worse.

"We'll be at 10% unemployment by year end," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, told the Wall Street Journal (subscription required). "What's going to stop it?"

The gloom and doom crew has been winning the day lately, but here's the question: What does it all mean for stocks?

Go back to 1983 for the answer -- four years after BusinessWeek had declared the permanent death of equities. That year marked essentially the beginning of the greatest bull run in history. From 1982 through 1999, the Dow Jones Industrial Average soared from 800 to over 11,000.

One by one, the key indices appear to be breaking their support lines.

The Dow Industrials were the first to break, but the S&P 500 has also fallen through its support zone at 800 to 820, and so has the NYSE Composite. Only the Nasdaq is holding above its January low while the others are in a full test of their November bear market bottoms.

But despite the full attack on the bear market low, it would be dangerous to assume that a market sell-off is inevitable.

Once again, the Dow has registered a lame, listless rally and then moved back below 8,000.

For those investors who may not follow indices closely, the 8,000 level has psychological but not technical support. The latter measures such things as the number of investors who are buying / selling, whether investors are committing new money to the market etc.

Right now a battle is taking place between bulls and bears at the institutional investor level: the bears argue the worst economic news stemming from the financial crisis is yet to come; the bulls say 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.

The Dow Tuesday closed below 8,000 at 7,949. If the bears can keep the Dow below 8,000, then push it through 7,800, then 7,600, it will not be a pleasant time for investors.

Some institutions may continue to hand-sit until mid-February, preferring to await the Obama Administration's announcement of the exact size of the fiscal stimulus package, now believed to be approaching $725-850 billion.

Typically, when the economy enters a recession, companies that are in the consumer non-durable sector, i.e., consumer staples, see their stocks trade higher as money flows into bulletproof subsectors of the economy that don't suffer from spending cuts.

Companies like Proctor & Gamble (NYSE: PG), Heinz (NYSE: HNZ), Hormel (NYSE: HRL), Kraft (NYSE: KFT), General Mills (NYSE: GIS), Johnson & Johnson (NYSE: JNJ), Pepsi (NYSE: PEP), Coca-Cola (NYSE: KO), Campbell Soup (NYSE: CPB), Colgate-Palmolive (NYSE: CL) and even Berkshire Hathaway (NYSE: BRK.B), which was down a whopping 49% before getting a year-end bounce.

I think Warren needs to get off TV and get back to work.

My point here is that all of these fortress names got beat up to the tune of 30% to 50% when they were supposed to be the go-to names that would put in a stealth rally in a bear market.

Seems the kitchen and bathroom stocks didn't work this time around.

Bryan Perry is a contributor to OptionsZone.com.

The world's largest economy is on pace to record its longest recession since 1947, a survey released Wednesday predicted.

A decline in consumer spending will push U.S. GDP down 2.4% in Q1 2009, and another 0.5% in Q2 2009, according to 51 economists surveyed by Bloomberg News.

If the above occurs, it would be the longest U.S. recession since 1947, so says economist Richard Felson, who did not participate in the Bloomberg survey.

"It would be a truly negative circumstance, the weakest economic conditions since the end of World War II and the weakest job market conditions since the 1981-1982 Reagan recession," Felson said. "A Q3 2009 recovery would give us a 20-22 month long recession, which is just dreadful. But you can understand why, with housing, manufacturing, exports, business investment, and consumer spending all trending in the wrong direction. It would be the 'mother of all contractions.' "

One hears the mantra almost daily, often from friends and relatives:

Aren't stocks cheap? Look at those low P/Es! GE is at $15 a share, Intel below $14, Du Pont at about $27. My goodness, the Dow is down to 8,200. Isn't now a good time to buy stocks?

It is, if you believe the Dow is forming a bottom and/or that the worst of the financial crisis is behind us, and the U.S. economy is set to recover.

However, the alternate viewpoint argues that the Dow has not bottomed, could very well fall another 1,000 points, with panic selling (known as 'capitulation' in Wall Street circles) taking the Dow to levels well below that, at least for a short period of time, possibly longer.

Hence, purchasing shares for the first time now (or adding to existing positions) given the latter scenario would create an immediate 10% loss, or possibly more.

Monitor corporate earnings and job growth

What's a better tack to take concerning when to buy more shares? Monitor U.S. corporate earnings and job growth.

Talk to the stock market's bulls and they argue the Dow is forming a bottom at / near 8,000.

Talk to the bears and they say you're dreaming, if you think the Dow has bottomed at 8,000.

What's the typical investor to do?

Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision / conclusion.

Technical Indicators: Bearish.
Fundamental Indicators: Bearish.
Monetary Policy: Officials are doing everything they can to stimulate growth. Bullish.
Fiscal Policy: More fiscal stimulus should be on the way, in both the U.S. and aboard. Bullish.

Credit Markets: Recovering, but still strained, with still too much interbank distrust / fear. Bearish.

Geopolitical Risk: On average, it's about the same as it has been during the past 3-5 years. Neutral.

Conclusion: The view from here argues that the outlook for U.S. stocks / stock market is bearish at least for the next six months, and most likely for much of 2009. Further, if Dow 8,000 doesn't hold, the market could fall much more, particularly after 2009 earnings estimates are revised downward, as they are expected to be.

The epic battle between the stock market's bulls and bears continues. The Dow Thursday registered yet another difficult day, down 443 points to 8,695.79. It seems like just a couple days ago the Dow was above 9,600. No, wait, that was just a couple of days ago!

Don't be swayed by a mild market rally today: the Dow has declined about 10% in two days, and a mild rise could be merely short covering ahead of the weekend.

From a technical analysis standpoint the view is not pleasant as the Dow is well below its 50-day and 200-day moving averages. There's not enough buy side pressure to propel the Dow higher, but the Dow is still not oversold, with a relative strength index (rsi) of 42.

Further, the fundamentals picture does not look any better. Declining earnings and zero job growth -- the U.S. economy lost another 240,000 jobs in October after losing a revised 289,000 in September - are the main reasons yours truly has taken pains to underscore that if the Dow can hold 8,000 by the time 'normal' credit flows resume, that will be a moral victory.

Investors have become accustomed to bull markets -- long periods of stock price appreciation, i.e. a rising stock market. That's been the norm since the start of publicly-traded stocks in the United States, and certainly a feature of markets in the post-1980 period.

Provided that the U.S. economy is growing in a sustainable way and increasing its productive capacity, bear markets have been the exception, the momentary pull-back, when one takes a long view of the investment horizon.

The current bear market can be seen in that light, again, provided the nation's economy is on a sustainable growth track with an increasing productive capacity.

Still, the key in the above has been the U.S. economy (obviously). Absent a healthy economy, different Dow case studies pop up.

For example, what if the Dow didn't fall -- and didn't rise -- for seven years? In other words, a sideways Dow where no progress is made? It seems like a remote possibility, but that's exactly what occurred from early 1966, when the Dow fell below 1,000, until late 1972, when the Dow reclaimed the psychologically-significant 1,000 level.

With the nationalization of banks seemingly exceeding IPOs these days, to say that both developed and developing nations economic performance expectations are more-modest today than they were a year ago would be an understatement.

Still, investors would be wise to take a page from that playbook, as it relates to the Dow, and more broadly, to the U.S. stock market, so says economist Richard Felson.

Concentrating on the problem, not the inconvenience

Felson, who took pains to point out that he is not a market analyst or stock guru, nevertheless highlighted the importance of reining-in stock expectations: people who are 'looking for the market to rally,' or who look for a relatively quick turnaround in stocks in a quarter are missing the point.

"The purpose of the monetary and fiscal actions being taken is to maintain the financial system, so that there are stock markets, not to get the Dow to rise, or to create the next bull market," Felson said. "Investors need to keep sight of that fact." Today the Dow closed down 678 points to 8,579 and the S&P 500 was down 75 points to 909.