We hope everybody's Tuesday is going well so far. The bulls certainly got back to work during Tuesday's trading session, extending what's now become a freakishly-long winning streak and pushing the S&P 500 right up to the brink of record highs. Any chance we'll actually break through the nearby ceilings and keep on trucking? Ya know, I may have been a doubter a few days ago, but given what we've seen take shape the last few days, it wouldn't be crazy to entertain the idea. We'll look at those details in a second. First, we've got just a couple of quick notes on the economy we didn't get to look at on Monday... last month's capacity utilization and its corresponding industrial production data, for one, but also a look the inflation rate as of the end of August. Hints of Economic Progress Just as a reminder, neither capacity utilization nor industrial production have been impressive recently. Capacity utilization - a gauge of how busy our factories are - had been flattening at levels below the March peak around 78.2, while the Fed's industrial production index hadn't made any real progress since April. One, or even two, stagnant months can be overcome. As of August though, we're now about four months into an economic lull. Did anything change for the better with yesterday's data? In a word, yep. It may not be an earth-shattering improvement, but the industrial production index moved up from 99.0 to 99.4. That's the highest reading we've seen since early 2008. Capacity utilization didn't move as dramatically. It got bumped up from 77.6% to 77.8%. But, that's still progress, and the reading of 77.8% is near multi-year high levels. It's still too soon to get excited and wildly bullish about the data, but it's at least better than a step in the wrong direction. It's NOT good enough to spur any serious earnings growth heading out of Q3 and into Q4, however, if that's what you were wondering. As for consumer inflation, you might recall the last reading of 1.96% wasn't excessive on an absolute level, but the uptrend was a little unnerving. The CPI growth rate was only 1.06% in April, but had soared to 1.96% in just a few months. If it were to keep rising at that pace, it could be a problem. Well, the problem was avoided. The inflation rate fell back to 1.52% for August, which is something we can handle with relative ease given our current situation. All in all it's been a decent week, economically speaking, though the bigger fireworks due tomorrow and Thursday could quickly change that. On Wednesday we'll get last month's housing starts and building permits data, and we'll hear the existing-home sales pace on Thursday. The pros are looking for decent numbers both days, roughly in line with July's figures. It'll be interesting to see if housing is actually holding up after last month's wobble. What's scary (to me, anyway) about the whole situation is how homebuilder confidence is the highest it's been in eight years. See, I'm a contrarian at heart, which means I tend to bet against the crowd or bet against the obvious trade at the point when it seems most logical to fall in line with everyone else. Why do I do this? Because most of the trading crowd - or in this case, most of an industry - is most certain they're right at the exact wrong time. In other words, because it's profitable to be a contrarian. So, this kind of defiant, in-your-face confidence from homebuilders (at a point when interest rates aren't at record lows and homebuilding itself is starting to stumble) seems like a perfect setup to dole out a lot of pain to a lot of people in a short period of time. Case in point: Homebuilder confidence was at its highest point in years in mid-2006, before it all came crashing down. We're still nowhere near those levels now, so there's room to grow. On the other hand, homebuilder confidence has soared more/faster in the last twelve months than it ever has before. When we start breaking records, I start getting nervous. We've Seen This Before As of late this afternoon, the S&P 500 has gained 4.6% in just fourteen trading days. That's more than a little, given the amount of time. Somewhere between the 3% and the 4% mark - when the S&P 500 first started to bump into the upper Bollinger band - we were largely expecting the index to roll over and pull back. Now that it hasn't, and has instead continued to push higher into the upper band line, the odds of more rally just got a whole better. Take a look. But still, isn't 4.6% in less than three trading weeks just a little more weight than stocks can shoulder, leaving no real chance of more upside? No, and we don't even have to look that far back for proof. Remember back between late June and mid-July? The S&P 500 traveled a total of 7.8% over the span of just nineteen trading days. The bump into the upper Bollinger band slowed the rally down a little, but it didn't up-end the rising market. Between late April and late May of this year, the S&P 500 advanced 8.3% over the course of 23 days, and in this case, the upper Bollinger band didn't present any problem at all for quite some time. Indeeed, it's almost as if the upper band acted as a guidepost for the rally. The point is, if the upper Bollinger band was going to be a problem - or a ceiling - it should have become one by now. None of this is to say the market is absolutely guaranteed to keep on rolling higher; you and I both know there are no guarantees or certainties in this game. But, one of the market's quirks is that once it gets going (like it did in April and June of this year) it has a tendency to keep on going... at least for a bit. So, of all the things to worry about, the upper Bollinger band is no longer one of them - stocks really do have a shot at a little more upside here. The only thing that bugs me is the way the VIX has inched higher the last couple of days. It should be moving lower when stocks are bullish. For some reason though, traders are becoming more and more defensive even as the S&P 500 is becoming more and more bullish. Now, if you're not sure how - or even if - this jives with our thoughts from yesterday that said stocks could be spurred by a solution to the debt ceiling problem, I'll give you a hint.... it jives. How? Assuming this rally takes the same basic shape and scope as the ones from April and June, we could keep going higher until the end of September. By early October when the media starts to fret over the looking debt ceiling, that could be a drag on stocks. But, by mid-October when a debt-ceiling solution finally comes into view, that should kick-start the usual Q4 rally. How strong the fourth quarter rally is, however, largely depends on how big any selloff is between now and then. Based on all we can see and deduce right now though, any correction we're due is going to have to be squeezed into the first couple of weeks of October. I know it may sound a little complicated. Sorry about that. But, like I warned you yesterday, this is a complicated situation (between the Fed's potential tapering, a new Fed chief, Syria, a debt ceiling, the calendar, and more), and there's no getting around it. We have to deal with it head-on, and to do that effectively we have to have some idea of what to expect.... even if it means getting a little messy. I really like the way John Monroe put it in this afternoon's SmallCap Network Elite Opportunity newsletter: "There's likely only going to be two potential outcomes from the Fed tomorrow and both are pretty obvious. The first being, he announces tapering and a modest rise in interest rates and the second being, he doesn't. How the Street decides to play it though isn't so obvious at this point. All of this transparency coming from the Fed in recent years has really helped the markets move higher but now that we're potentially in a position for a regression of bond buying, it opens the door for a tremendous amount of speculation. On one side, you've got the markets saying if he does start tapering, it's a sign he believes the economy is finally entering a growth phase. The flip side of that argument is a regression of bond buying pulls the rug out from under what has allowed these markets to work for the last five years. The other side is assuming if he does continue his bond buying theme and doesn't back off, he's still concerned about the economy going forward, which could be perceived as a negative, however, a continuation of his aggressive monetary theme could also suggest a resumption of what has continued to take these markets higher. With that being said, we're simply going to let the charts tell us what's going to happen because charts rarely lie, even if at times, Wall Street does. And, let's also remember, Wall Street loves to climb a wall of worry." The SCN EO newsletter made a couple of other great points on the matter that I don't feel comfortable sharing just yet. But, I can say they're worth a read. The SmallCap Network Elite Opportunity also added a new longer-term stock pick last Thursday that's still got plenty of useful life left. If you're looking to fill a couple of holes in your portfolio, now'd be a great time to use your free two-week trial offer. Here's how to get it. Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/