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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Markets flatten: Have they found their top?

In early afternoon trading, stocks have pared some of their losses, but they are down for the second straight day (and spent most of Wednesday underwater before closing up), so it's worth wondering if this is a blip or the long-advertised "correction" traders have been predicting and awaiting.

First, a look at the markets right now.

As of about 2:15, the Dow is down three-tenths of 1 percent.

The broader S&P 500 is down four-tenths of 1 percent and the tech-heavy Nasdaq is down six-tenths of 1 percent.

Now, let's take a look back and see how the markets have been trending in recent months. (These numbers do not include today's moves.)

Since the March 9 bottom, the Dow is up about 58 percent, the S&P 500 is up a little bit over 60 percent and the tech-heavy Nasdaq, which has been leading the rally, is up a whopping 70 percent.

As I always say: That's great. That's money back in your 401(k) and your portfolio. But professional traders haven't understood this rally, because it's not based on solid underlying economic fundamentals -- unemployment has only risen during the rally and GDP turned positive only in the third quarter -- but they have thrown up their hands and said, using the Wall Street phrase, "You can't fight the tape."

But let's take a look at how the indexes have been moving in more recent months.

Over the past six months, the Dow is up 21 percent, the S&P 500 is up 22 percent and the Nasdaq is up just shy of 25 percent.

Bring the timeline in closer.

Over the past three months, the Dow is up a little more than 11 percent, and the S&P 500 and Nasdaq are both up about 10 percent.

Now look over the past month, and you'll see the flattening that's underway. This may be the beginning of the "sideways churn" everyone's been anticipating.

Over the past month, the Dow is up just a little more than 2 percent.

The S&P 500 is actually just underwater and the Nasdaq -- remember, the leader of this rally -- is down 1 percent.

There are a couple of things at play here.

The stock market is traditionally linked to the dollar in inverse movement. When the dollar goes down in value, as it has been doing over the past year, the markets rise. But the dollar has moved up in recent days, and the markets have reacted accordingly.

I e-mailed Peter Boockvar, equity strategist at Miller Tabak, to ask him what he thought about the dollar and, by implication, the stock market.

"I believe in the short term that the U.S. dollar has seen a bottom," he wrote back.

That means he believes it's got nowhere to go but up. And when the dollar goes up, history tells us the stock market goes down.

In the bigger picture, this market is wondering how the economy is going to move from a government-subsidized one back to a private-sector one.

There's no question that the various government stimuli have added as much as 2 percent to third-quarter GDP. What will happen to fourth-quarter GDP if there is no further stimulus? Will it go back into negative territory? Even if it does not dip negative but does not grow, there will be political backlash and market uncertainty.

What happens if November unemployment jumps up from October's 10.2 percent rate, instead of flattening out?

It's hard to see anything in the underlying economy that's going to continue to push the markets higher in the coming months and year as long as unemployment remains high, home values haven't bottomed and government doesn't pump more taxpayer money into the system.

-- Frank Ahrens
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By Frank Ahrens  |  November 20, 2009; 2:17 PM ET
Categories:  The Ticker  | Tags: Dow Jones, Obama, nasdaq, s&p 500, stimulus  
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