In a nutshell, we believe stocks have rallied as the momentum of bad news has given way to 'not so bad' news. This will continue only if European leaders' Plan B has considerably more credibility than has been delivered thus far, in our view. We believe the following conditions are necessary for stocks to continue the current rally into the first half of 2012:

1. No US recession: We currently view odds for recession next year as 50/50. Our odds improve if progress is made in Europe (lowering contagion effects) and US housing and mortgage markets begin to stabilize (see Weekly Chart), with home prices finally finding a floor (even as household deleveraging occurs). Emergency unemployment benefits are set to be phased out by year end and will expire by mid-2012, removing a key support for many households suffering from long-term joblessness. Our favorite 'recession watch' indicators - initial jobless claims, the ISM indexes and credit spreads - currently indicate slow growth, but no recession.

David Fuller's view The Weekly View lists three other conditions which are likely to be of interest to readers.

I maintain that a monetary policy shift towards easing by China and India, which would be replicated by most other Asia/Pacific countries, would do more to help revive global GDP growth and lift stock markets than any other factor.

This prospect is discussed in considerably more detail in my response to the lead item above.