Economy peaking -- or is it?

Barry Ritholtz's post That Don’t Impress Me Much was another insightful piece. I quite agree that the fundamentals suggest an economy near a peak, with economic indicators now "heading the wrong way".

The problem is that the technical picture is not so much unclear -- as he suggests -- but contradictory to the fundamental picture. His earlier post with the S&P 500 chart Chart of the Week: S&P 500 Index Fibonacci Retracement actually shows that although the market has retraced about 50%, there has not been a significant correction to that retracement. It's unusual to have a market complete a rally with just one huge impulse wave without any intermediate correction. This suggests to me that the bull is still alive, although it may be just taking a breather now.

If the market continues its rally late into the year, it either means that the economic strength is going to last longer than many think it would or that something else is going to compensate for a decelerating economy. Of the latter, higher corporate profitability and lower- or later-than-expected interest rate increases are two things that come into mind.

So announcements of the bull's demise may prove premature.