What's ahead for equities---momentum or adjustment

The equity markets keep inching up. News reports remark on record rallies compared to this or that. Market pundits warn of an "elevator adjustment" as a necessary component of a rally, and that's the bulls, or a bear market rally that will obviously end badly because it's unsupported by the fundamentals. Who really knows, except that both camps have been wrong for longer than anticipated at this point.

How big is this rally. Rough numbers ahead---by March 9th of this year the U.S. equity markets had declined 50%. In order to recover that loss it would require a 100% rebound. As of today we have rebounded 54%. That's a huge rally, but relative to the market peak in this recent cycle it is still priced at roughly at 75% of where it was before the financial debacle began. Is that inappropriate given that the market looks forward, expectations for 2010 and 2011 are improving, U.S. multinationals have vast opportunities, and emerging markets are not a drag on the world economy as they were in all other post WWII recessions.

Will this momentum continue and go too far. Are the shorts covered and ready to come back in or is the market trying to hop on board the train as it is now pulling out of the station. Who knows, and some might say that's what makes it interesting, or dangerous. Even odds on spike up or spike down, but if this sublimely moderate every day rally is sustainable that would be unprecedented.