And on what? News that wasn’t as bad as expected, that’s what.

I guess the bulls are really looking forward to a recovery in the second-half. But let me ask you, when lending is being crippled, how can a recovery even come in the second-half?

I doubt it will.

So here’s what I see…

Manufacturing won’t do as bad since exports are rising by about 3-4% every quarter. Services may suffer, but there is a lot of job creation going on in the healthcare industry. In fact, in the past year, there have been more medical jobs added then manufacturing jobs lost.

All that will do is help the consumer from defaulting as much.

But there are still a slew of foreclosures hitting the markets. As these foreclosures hit, people will move into apartments. As demand for apartments increase, so too will prices.

So not only will we experience food and energy inflation. But we will also see rentals increase in the next two years as well. And as we all know, inflation hurts purchasing power.

And then, let’s not forget that the credit crunch basically killed the municipal bond market, forcing cities to look elsewhere for funding. In some cases, interest rates went up so high that cities will have a hard time keeping up.

As cities are squeezed of funding, jobs and spending takes a hit.

Ahhh, but let’s not forget how hard its becoming for less-than-stellar companies to acquire funding. Just last wekk two airliners went out of business. But there are hundreds of other companies getting close to doing the same.

As these businesses go bankrupt, people will lose their jobs and spending takes another hit.

So, I predict this ‘recovery’ everyone expects simply won’t happen. The economy might not contract horridly, but it won’t really grow either. It will be stagnant. And if inflation keeps moving higher, then we’ll have stagflation.

In the meantime, I have this feeling the Dow will re-test 12,800. If tomorrow it goes higher, i’m getting out of my puts and looking into some calls.

Again, i’m not calling the end of the bear market. Far from it. But I recognize when a rally is in the works. And it looks like that might just be the case.

We’ll see in the next few days.