After a fast run up, investors and traders wonder if the stock market rally can continue?

With Japan slipping into a surprise recession and Europe already in recession, a slowdown in China and overbought conditions at home, investors wonder if the stock market (NYSEARCA:DIA) rally can go higher.

Seasonality says that we can expect the Santa Rally, but will global headwinds be too strong for even Santa to go on his appointed rounds?

In a familiar theme of words and little in the way of action, the head of the European Central Bank was jawboning again Monday. From The Wall Street Journal :

“The European Central Bank is willing to take additional easing steps including purchases of government bonds if needed to keep inflation from staying too low for too long, ECB President Mario Draghi said Monday. Mr. Draghi’s remarks, in testimony to the European Parliament, underscored the central bank’s commitment to expand its balance sheet—the value of assets it holds—and if necessary widen its stimulus efforts to ensure that inflation rises back to the ECB’s target of just below 2%.”

The theme of ongoing “easy money” ties in nicely with what history says about the current stock rally in the United States.

Others argue that the rally has already happened and that well see only sideways action or an unusual retirement between now and the end of the year.

  John Hussman sees overvalued, overbought conditions and extreme risk in the current market environment:

The current market environment joins the full range of ingredients that have characterized the most extreme market peaks – and preceded the deepest market plunges – in more than a century of history.

On the basis of measures that are best correlated with actual subsequent market returns (and plenty of popular measures are not), we observe the richest market valuations in history with the exception of the 2000 peak.

Even then, current levels on the best performing measures are only about 15-20% below the 2000 extreme. Current valuations now exceed those observed in 1901, 1929, 1937, 1972, 1987, and 2007. The 5-year market advance from the 2009 low, encouraged by yield-seeking speculation, now places the S&P 500 at more than double the level that we would associate with historically normal returns.  Read more

Shah Gilani from Money Morning writes:

With the Dow Jones Industrials and the S&P 500 (NYSEARCA:SPY) indices repeatedly making new highs, chances are better-than-good that markets will rally through year-end.

There are lots of reasons why stocks are headed higher, but one in particular is telling.

Its really a simple one, yet too many people have overlooked it; indeed, most wouldnt even give it enough thought.

And that would be a big mistake…

You see, if you understand that one compelling reason, you can pick some winners – and pocket big profits – yourself.

Remember: Greed Is Good

The one almost overriding reason markets will likely keep rallying through year-end is Wall Street players need a good rally to make year-end bonuses and keep their jobs.

Yeah, thats it!  Read more

Technical factors point to the rally stalling at current levels:

Read Dow Jones Industrial Average Stalls At Record Highs