Draghi’s press conference was beyond positive — mostly rhetoric, of course, but it sounded good. The ECB sees conditions improving, blah, blah, blah even as euro zone unemployment continues to set record highs and bank health hits record lows.

Facts might eventually enter the equation or not, but in the meantime it’s enough for currency investors to disregard the lack of a rate cut and bid up the EURUSD almost a full 1% on the session.

The dollar is likewise plunging, reaching 80.055 moments ago.

Jobless claims were reported slightly higher than expected, perhaps giving Fed intervention fans hope that the punchbowl won’t be removed as quickly after all.

The eminis are up 8 points at this time, suggesting SPX will likely surpass the recent high of 1467.94.  I’ll likely go long on any move over 1468, but with tight stops as there is likely to still be negative divergence on the daily chart.

The previous high of 1474.51 remains the obvious key level for bears to defend and the area at which I would probably close my core short position.  Why bother to continue holding it?

I have a very strong suspicion that this is one of those rallies on vapor that will quickly fizzle.  The dollar, while selling off big time, will likely hold 80.  And, note that this morning’s slide is still just an A-B-C back test of the recently broken channel.

There is some indecision, to be sure.  There’s still positive divergence to the upside (relative to Point B) but, now, negative divergence to the downside (on 4hrs or less, not the daily.)

UPDATE:  9:48 AM

SPX pushed above 1468 for about one minute and immediately retreated.  This is likely nothing more than a stop clearing exercise.  I’ll hold off adding a long position unless we get a sustained push back through.  My core short from 1462 remains in place, though we’re obviously on high alert for a break-out.

The dollar has rebounded slightly off its lows, and the euro has stalled for the moment.

If we set aside the euro (the largest component of the DX) the dollar is showing much more resiliency.  Consider the AUDUSD pair, which has formed a double top (1.0585 Dec 12), but hasn’t broken out of the falling channel or made any new highs since breaking down from the rising wedge.

Taking a look at the USDJPY, the pair has pushed higher since our Jan 4 top call (despite heavily negative divergence.)  A push above 88.52 would justify switching sides.

I guess what I’m saying is I have no confidence whatsoever in the euro rally.  It seems quite overdone on both a technical and fundamental basis.  The ECB will print and cut rates before long, despite what Draghi says.

If the Fed really does hold the line on further easing, this could be disastrous for the EURUSD.  I suspect it’ll be much closer to 1.20 than 1.30 before mid-year.

UPDATE:  1:20 PM

The Philadelphia Fed released their revised December survey numbers this morning.  When was the last time a revision revealed that things were actually better than originally reported?

The original Dec 30 results noted:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.

Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.

The revised data (if it is to be believed) shows the index hit 4.6, not 8.1; and, new orders hit 4.9, not 10.7.  But, the most telling adjustment was employment which, instead of registering the first positive reading in six months at 3.6, remained mired in negative territory at -0.2 — the sixth negative reading in a row.

Expectations for the future general activity were revised from 30.0 to 23.7 – about where they’ve been for the past year.  And, expectations for future employment dropped from 14.8 to 11.2 — the third lowest reading for 2012 and a very slight improvement from the Hurricane Sandy period.

This new information helps explain the body language of the Fed employees delivering the “great news” a couple of weeks ago.

UPDATE:  3:30 PM

SPX continues to inch higher — only a few points below the previous Sep 14 high.

continued for members...

As discussed earlier, 1474.51 is the number that really matters now.  Above it, this rally is no longer a deep retracement, but a leg up.

There’s no value in being emotionally attached either way.  If we push higher, I’ll likely dump my shorts from 1462 and switch sides — even with negative divergence.  If not, so much the better.

But, I think it’s important to realize that this rally is highly suspect.   SPX and RUT are the only major indices acting like the sky’s the limit.

NYA is inching up on its May 2011 high and has barely broken its .707 Fib from 2007.

Prices are bumping up against its channel mid-line, there’s negative divergence on every RSI chart from monthly down to 1 minute, and the weekly RSI channel promises stiff resistance.

The Dow hasn’t even reached the .886 of the Sep 14 high.  NDX hasn’t even cracked the .786.

The Transports are still trading below their 2011 highs — but did just complete both Crab and a Butterfly patterns today.

XLF is still working on besting its Feb 2011 high.

COMP completed a Gartley a couple of days ago and has gone virtually nowhere since.

AAPL hasn’t come close to breaking out of the falling channel its been mired in since August.

EURUSD never did break through its .886 from Jan 1.  And, the dollar index is still comfortably in a rising channel from Dec 19 that’s in a rising channel from May 2011.  Today, it tagged the .618 from Dec 19.  It was a decent sell-off (1%) but it doesn’t completely unravel the bearish case for equities.

And, pretty much EVERYWHERE… negative divergence, completed patterns, etc.  I guess what I’m trying to say is this rally feels as fake as a three dollar bill.  It smells of stop-running and short-covering, and I don’t trust it for a minute.