The stock market's got its groove back, thanks to Europe. Well, really, thanks to just Germany.

This after that country's leadership threw the rest of its European neighbors a bone during a closely watched two-day summit last week. All eyes were on the meeting as Italian and Spanish borrowing costs approached the levels that had forced Portugal, Ireland and Greece into bailouts. And they weren't disappointed: Germany shifted its position and decided to support using eurozone bailout money to prop up weak banks in countries such as Spain.

After months of worries over a possible eurozone breakup and persistently disappointing global economic data, equities, commodities and other risky assets jumped higher in a big way on Friday. This was after an overly pessimistic investment community and overleveraged hedge-fund types with big bets against the euro were forced to reverse their positions in a hurry and buy anything that wasn't bolted down.

Small-cap issues, emerging-market equities, crude oil, gold and fast-moving stocks in areas like biotech and regional banking all gapped higher.

This move looks set to continue for at least a few months -- the pullback we saw Monday notwithstanding -- before stocks hit another wall. Brave and nimble investors will be presented with plenty of opportunities (which I'll highlight later in this column) to profit from the move.

Here's why the rally is on.

Bears on the run

No, our deep economic problems -- too much debt, a stalled market and Europe's unresolved structural issues -- haven't been resolved. But with investor sentiment so sour, futures and options positioning so negative and policymakers determined to pump things up, a move up becomes inevitable.

Image: Anthony Mirhaydari

Anthony Mirhaydari

This is one of your typical short-covering, bear-crushing, false-hope rebound rallies fueled by a temporary parting of the clouds across the Atlantic and a big, coordinated push by global central banks to pump more cheap money into the financial system -- something I discussed in "Get ready for the last-gasp rally."

Don't call me a cynic; I'm just playing Wall Street's game. These days, fundamentals like corporate earnings don't matter as much as the actions taken in Washington, Brussels and Frankfurt. You've got to get in, get your profits and get out. There are no good alternatives for investors. Buy-and-hold investing is churn-and-burn as the market is mired in an epic, four-year head-and-shoulders reversal pattern. (See the chart below for what this means; basically, we're seeing peaks between lower lows.) And hiding out in the bond market is a no-go, because inflation-adjusted interest rates on Treasurys are in negative territory.

$NYA ©

Rise of the money printers

So the central banks, unencumbered by the calls for harsh and ultimately misguided short-term budget austerity (witness the recession taking hold across Europe, driven by spending cuts and tax hikes) are stepping in.

The People's Bank of China has acted, with its first interest-rate cut since 2008. The Bank of England has acted, offering fresh low-cost funding to banks and a willingness to accept lower-quality collateral against that funding. The Federal Reserve has acted, with a $267 billion extension of "Operation Twist," a program to push down long-term interest rates that was originally worth $400 billion. And now, the European Central Bank is getting in the game again.

Remember that its offering of cheap three-year loans to European banks late last year fueled a big market rally. Since the ECB is at the epicenter of the main bugaboo for the global economy, its actions will arguably have a big impact on where stocks go from here.

Already, late last month, the bank joined with the Bank of England to relax its collateral rules by lowering the rating threshold it requires to take securities backed by things like auto loans and commercial mortgages that banks pledge in exchange for cash.

Now, the chatter is that the ECB is preparing to lower its main interest rate from 1% toward 0%, or even into negative territory. Bank of America Merrill Lynch interest-rate strategist Ralf Preusser believes a 0.25% rate cut is likely. This hasn't been priced in by the markets, which are putting only a 35% probability on a rate cut.

Further, the central banks that have already taken action are likely to respond to ongoing economic weakening with more action. Preusser is looking for the Bank of England to expand its direct bond-purchase program (a strategy dubbed "quantitative easing" by Wall Street, and something our own Fed has done not once but twice -- to the tune of around $2.4 billion) by more than the $80 billion the market expects.

Over the past few years, the Bank of England has conducted some $509 billion worth of QE, which is essentially vulgar and overt money printing.

And let's not forget the Federal Reserve, which noted in its June 20 policy statement that it is "prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in the context of price stability." Another round of QE, possibly a "sterilized" variety that would see the Fed use stagnant short-term bank deposits from the likes of Bank of America (BAC), worth around $1.5 trillion, could be used to turn around and buy mortgage-backed securities to give a little extra nudge to the housing market.

All of the requirements are being met. Inflation has plummeted, for now, thanks to a massive drop in crude oil prices back to October's lows as Saudi Arabia floods the world with cheaper energy. Job growth has stalled, and economic activity has hit a wall. Just look at this week's dismal ISM manufacturing report, which suggested an outright month-to-month drop in factory activity for the first time since the recession officially ended back in July 2009.

The new-orders sub-index, a leading indicator of the overall index, dropped to levels not seen since April 2009. Given the dynamics of our current malaise -- too much debt and the unhealed wound that is the housing market -- another recession would be a disaster. Such are the consequences of a debt deleveraging, balance-sheet recession as illustrated by Nomura economist Richard Koo and the subject of many of my columns in recent months (see "The world's $8 trillion debt hole").