With stocks staging a significant breakout from a technical perspective to start the week, a nice summer rally is officially here.

After four weeks of consolidation, the S&P 500 dropped as low as 878 on May 15. More importantly, it held above key levels of resistance. Then yesterday, the index broke above the 943 high of Jan. 6, setting a new high for the year.

We're basically in a new trading range that could go up to 1050. That's where the next level of resistance seems to come into play. Such a rise would represent another 11% upside from early trading on Tuesday.

If you remember our last column, we were wary of headwinds at the mid-900-level. But with strong volume on Monday, the broad market index has staged a second-leg move up. This indicates institutional investors are supporting this next phase of a rally that began some 12-weeks ago. 

Still, we remain a secular bear. When it became apparent over the weekend that General Motors was going to declare bankruptcy on Monday, my fundamental instincts were stung. Helping to feed those feelings was the fact that I'm a native of Michigan. My father and brother worked at GM for decades, and my cousin still works there.

Domino Effect 

Thousands of people are going to lose their jobs. For each job that will be lost at GM directly (including the likely closing of the plant in which my cousin works), probably four other ancillary positions will also be pulled down from this bankruptcy. Those include everything from caterers who serve lunch to auto workers to outside wholesale suppliers and local merchants. 

The GM news was part of an ongoing set of dour unemployment events taking place since the bear market began in October 2007. But on the real estate front, we received some positive news on Tuesday. Pending home sales were announced and the latest readings showed a gain of 6.7%—the fourth increase in five months. California and Florida, two of the worst-hit areas in the past two years, led the way. Another number that came out today tracking an affordability index for homes was up, hitting its second-biggest reading in history.

Financials, another big area of concern following the freezing of credit markets, seem to have finally found a floor. Some banks are even moving to pay back the government for their bailouts. That can only free-up more credit and spur greater consumption of big-ticket items, something any new growth cycle could use to build momentum.

Throw in a seemingly quick GM and Chrysler bankruptcy process, and our biggest economic headaches appear to be  much less severe than just a few months ago. In fact, inflation looms as a bigger concern than deflation if we're moving into a prolonged summer rally.

If interest rates do start moving up, of course, that means mortgage rates will go up as well. Inflation could curtail prospects for a prolonged stock rally. That's why we're strongly suggesting the use of stop losses with all exchange-traded fund investments. We're in a very fragile recovery.

Economists are going to have to rewrite college textbooks—we've moved into entirely new ground with the government's role in supporting GM and other private industries.

But as we move into a new set of potential problems, let's take a look at what the market is signaling from a technical perspective.

First, all the major indexes have broken above significant 2009 resistance levels. And they each appear to have at least another 10%-or-so potential upside. The second leg of this rally won't lift all boats the same, though.

Ways we're playing the latest breakout, with an eye toward a weakened U.S. dollar and potential inflation, include:

• The PowerShares DB U.S. Dollar Index Bearish (NYSE: UDN). This ETF automatically shorts the greenback, which is a trade we first made on May 8. It still seems ripe to add to existing positions at this point. The ETF just broke above significant resistance of $27.01 a share on heavy volume. We've got a price target of $30 per share.

• The Energy Select Sector SPDR (NYSE: XLE). In times of rising prices, we definitely want to own hard assets. As Fed chairman Ben Bernanke has alluded to in the past, it's apparent that the U.S. government is taking a dollar-weakening stance. As the dollar weakens, the costs of hard assets on a relative basis should increase. A secondary reason we like hard assets is because emerging markets are recovering faster than developed markets. So if we're expecting rising demand from China and India, for example, then that should put additional upward pressure on raw materials and energy prices. For that reason, we also like the SPDR S&P Metals & Mining ETF (NYSE: XME).

• We still like the SPDR Gold Shares (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV). We've owned these ETFs in the past and recently repurchased both in early May. Fundamentally, one of our reasons to favor GLD and SLV relates to how China and other big buyers of the U.S. dollar might do in the future. While it's unlikely they'll completely walk away, they could wind up taking a portion of their holdings and diversifying into a basket of other currencies and precious metals. Even if that amount were 10% or less, such a move would add to pricing pressures on GLD and SLV.  

From a technical perspective, GLD looks to face major resistance at around $100 per share. (It was trading at $96.21 early Tuesday.) But if the ETF can move past that point, it would signal renewed strength. We've got a price target of around $125 on GLD.

On the other hand, SLV is already facing significant resistance right now. (It was trading at $15.53 early Tuesday.) Near-term resistance appears to be around $19 per share, with bigger resistance at $20.75. Remember, that's still a 33% upside from where it's trading right now. But if SLV can break out past $21, the next resistance level would come at about $24 a share.

Again, this is a very fluid situation. Whatever you do, we suggest taking proper precautions and using stop loss orders with whatever investments you're considering. That can't be stressed enough in these volatile times. No doubt many doomsday forecasters have solid fundamental reasons to be concerned at this point. But as stock markets are now technically confirming a new growth cycle is taking shape, we're seeing opportunities. Still, we're putting safety first and not letting a nice summer rally loll us into a false sense of security.

Jerry Slusiewicz is president of Pacific Financial Planners in Newport Beach, Calif. He welcomes comments and suggestions for future columns at:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it .