The SP500 has charged ahead after good news. News like Facebook IPO, employment numbers and Apple earnings. Good news is always present at a market top, could 1350 be a market top. Here is how we read the current SP500 condition.

First we must state our last SP500 review was simply wrong, the ECB fueled LOTR rally broke our stops: SP500, monkeys are running the show

Some fundamentals truths:

Earnings (the life blood of the stock market): After earnings estimates were lowered many times for 2011 Q4, they have been easy targets to be beat. The truth is earnings are weak, the earnings cycle peaked in 2011 Q4, and future earnings will not be stella, but you can ensure targets will be set to get easy beats.

US Employment: The 2012 Jan headline numbers have been goosed up by a crashing employment participation rate and massive season adjustments. The BLS number are political numbers and should be ignored.

USA bonds: The Fed has be buying the long end of the yield curve via operation twist, thus mortgage rates at very low levels artificially so (30yr mortgage at 3.8%, wow).

Europe bonds: The ECB has used the LOTR to buy bonds of the PIGS nations in 2012. Europe's QE! The funds from the LOTR liquidity has chased US stocks higher, and not German or French stocks (see EWG and EWQ performance.)

Europe economy: Interest rates are at recession levels, Europe will be in recession in 2012/13.

China economy: Who knows, nothing is true out of china. Baltic dry index has crashed.

USA Economy: Consumer spending is healthy if you believe the car sales data, however if you believe the true jobs information (from tax returns details) than USA is heading into recession.

SP500 Technical points:

- SP500 is completing a ABC, the C wave is on the lowest volume for a decade. This is not a true condition of a new bull market break out. Low volume rallys generally fail, hard !

- The average SP500 price waves have been between 12% to 21% either up or down over the last two years.

Here is expected price targets for the current wave C at (ii), based on previous price movements (see numbers in yellow circles on chart), before we get some sort of correction, 5% or 20% who knows!

So what can rock the ECB LOTR and Fed operation twist (long bond buying) world. Felix Zulauf says that the risk is political or in other words Greece and or Portugal leaving the euro zone. The actual default of Greece is not going to scare the market (after all LOTR2 will pay for that), Greece leaving the euro zone will. For the simple reason if Greece leaves, then who else will leave, confidence is in the eurozone structure is shot, as nobody will know what the eurozone will look like in the years ahead. Who will be in, who will be out?

What will LOTR2 do to the market (due Feb 29 2012), juice it up like LOTR1, must assume so, however if news of Greece default and likely hood of leaving the euro zone is making headlines, than the latter will win and SP500 (SPY etf) will be the top around 134 - 135.

Some very important cycles confirm a top is to be expected during Feb/Mar 2012.