The market has put in a solid rebound from its lows reached in March, but the economic news hasn’t been getting much better. In fact, some can make the argument that it has gotten worse. For example, The University of Michigan Consumer Sentiment Index hit a 28-year low in May. GDP growth is barely above 0, the unemployment rate is ticking higher, housing remains in the dumps and commodities keep going through the roof.

Many people make the mistake of assuming that the economy and stock market go in lockstep at exactly the same time. Does this mean that the market is showing a bout of ”irrational exuberance?” No, and here is why.

The stock market is a discounting mechanism, which means it is forward looking by approximately six to nine months. Obviously stocks are forecasting better times ahead for the economy as evidenced by its recent rebound.

This also explains why our market direction models have largely produced “Buy Signals” and continue to do so. Last week The Correct Call saw a major improvement in the internal health of the NYSE and S&P 500 as the number of new highs dwarfed the number of new lows.

In addition to a stronger heartbeat, we saw the NYSE move above its 10 month moving average for the first time since early January. The NASDAQ is right on its 10 month average and the S&P 500 and DOW are both one strong up day away from crossing the line as well. When the indexes are trading above their 10 month averages, it’s generally considered to be one off the hallmarks of a Bull Market.

If all four of the main indexes can achieve this key milestone in succession, this is known as confirmation. A four way confirmation of this major Technical Analysis “buy signal” should act as a signpost pointing the way to higher stock prices in the immediate future.

Just remember that when the economic news does eventually get better, it may already be priced in. So when the unemployment rate ticks lower and oil starts to drop, stocks might not advance as much as you expect or hope because it might be already been priced into the market.

The market has always been and probably always will be a better predictor of economic activity than any talking head you see on the squawk box.