Is the Dow on its way to new all-time highs? We wouldn’t bet against it at the moment, having exited a short position in Citigroup the other day just before it and a whole bunch of other stocks took off. A global leader in the smoke-and-mirrors business, Citi seemed like a perfect proxy for a stock market that continues to waft skyward on a turbocharged mixture of hot air and short-covering. Our colleague Bill Fleckenstein would seem to agree. Fleck notes that Citi’s structured-credit portfolio has put the banking behemoth in the thick of global credit angst, through such investment vehicles as its Beta Finance, Centauri and Dorada. Concerning just one of them, Beta Finance, Citi’s boilerplate notes that leverage is ‘only 14.24 times.’ ‘Thus, Citigroup, a leveraged entity, owns a gaggle of leveraged S&Ls,’ writes Fleckenstein. All of them, he says, are down close to 20 percent. Fleck’s complete article can be accessed by clicking here.

Whatever problems Citi eventually may face as a consequence of its exposure to the structured-credit world, investors appear to be blithely unconcerned at the moment. Yesterday the stock gave up only a dime of Tuesday’s spectacular gains, suggesting it may be consolidating for another thrust. If so, the rally would need to come today or tomorrow to keep the short-squeeze going. The chart below shows why. For a rally to achieve the status of bullish ‘impulse leg,’ we require that it surpass two prior peaks without a pause of more than a day. As you can see, Citi has exceeded one prior peak but not the second, 49.00, which it merely tied at the peak of yesterday’s rally. If the downturn continues today, it would imply the rally lacks guts and that short-covering had become more or less exhausted. Still, given our bullish forecast for the broad averages, we’re inclined to give Citigroup every possible benefit of the doubt.

So how bullish are we? Subscribers may have been shocked at the DJIA rally target proffered in Wednesday’s edition. The forecast will remain highly speculative until such time as the Indoos achieve a new record high. But that would require only a 155-point rally above yesterday’s peak ‘ hardly unthinkable. If you are the kind of bear who puts survival first, this is a good time to feather back the short selling. Our hunch is that the stock market will continue to rough up bears and that there will never be a comfortable opportunity to short the top. More likely ‘ inevitable, perhaps ‘ is that the ‘perfect’ short will come on a Friday in the final minutes of the session, with the broad averages in the throes of the most powerful rally that anyone can recall. Short then if you can, since the gap-down opening that is all but ordained to follow on Monday will be�.the nastiest that anyone can recall.

If so, the seemingly absurd rally target that we’ve furnished for the DJIA allows plenty of room ‘ not only for a memorably bizarre Friday, but for a few days’ worth of ‘preliminary’ short-squeezing earlier in the week to shake out the faint-hearted. We can think of no good reason for the DJIA to reach our take-no-prisoners target — but since when did Mr. Market need a good reason to do anything?