The most recent extension in the rally that started Dec. 20 admittedly has left me somewhat paralyzed in terms of adding to new positions both to the long or short side. As a result, I have spent more time trading around focusing on the smaller swings intraday to generate base hits (cash flow) rather than home runs and waiting for better risk/reward setups for swing trades.

The seemingly relentless strength of the push higher in equities, while riding on the back of relative improvements in the U.S. economy, did result in a flip of investor sentiment of historic speed. Where in mid-December most investors stared into the abyss, by the time mid-January arrived (after a 15% rally in financials) most investors were once again frolicking through fields of blooming flowers.

Here are a few charts that best describe the current environment:

Treasuries

10-year U.S. Treasuries are yielding below 2%. The Fed’s most recent statement on keeping interest rates low through 2014 clearly states they don’t see much economic growth on the horizon. Treasury yields reflect this, and a drop of yields below 1.8% could lead to a move toward 1.5% — growth is slowing.

Consumer Price Index

At the same time, inflation and inflation expectations (if we were to look at inflation-protected securities) are on the rise. Note the Consumer Price Index has been steadily rising and retailers such as Whole Foods (NASDAQ:WFM) have recently shown that inflation is real — just look at the price increase in beef.

Nasdaq 100

Stocks, however, are happy to tag along for the ride, and while it remains to be seen whether they are confusing inflation with growth, the air — at least in the medium term — is getting increasingly thin for them up here. The Nasdaq 100 is up almost 17% since Dec. 19 and overbought by just about any measure. A pullback target to look for is around the 2,440 mark, which is the blue horizontal line on the chart below.

S&P 500 10-Day Moving Average

The recent strength in equities is evident in the fact that individual stocks, as well as the S&P 500, continue finding support at their 10-day moving average.

Dollar Index

At the same time, the dollar index — which has a tendency to trade inversely to stocks — reached its 50% retracement level of the latest swing higher that started in late October 2011.

The above charts draw a fuzzy picture about the medium term as attractive equities come head-to-head with inflation masked as growth. It remains to be see how the medium term plays out, but near-term upside for equities is getting increasingly difficult to envision. Better risk/reward entry points for equities are around 5% lower on the S&P 500, or around 1,280-1,300.

As of this writing, Serge Berger did not hold a position in any of the aforementioned securities.