After lots of thought over the weekend and after looking carefully once again at the charts right now I have to take an aggressive bullish stance on this market. I think there is a decent possibility we could see between 1300 to 1400 by the end of this year.
If we do pull back I do not expect any pullback to break under 1040 and definitely not under 1010.91. If we do someone manage to break under 1010.91 or even 1040 in the future then I will have to rethink my stance. As indicated in a previous post 1010.91 marks almost a perfect .382 fibonacci retracement of the entire rally that began since March 2009. As long as this retracement level holds I expect the market to continue to power higher in the near term possibly as high as 1131.23 to test the 6/21/10 swing high. One of the reasons why we are trading so persistently higher right now is because the market is ‘feeding’ off of a bullish divergence not only between the MACD and price but also between the McClellan summation index and price.
Of course we will not go up in a straight line and we are also heading fast into the lame summer low volume months. Therefore I expect that we will cascade higher into end of July creating some sort of high below the April 2010 high and then I expect us to start selling off moderately sometime in August. There is a decent possibility we will create a cup and handle type pattern. The handle portion could start to form sometime in August and then curl back up and engage the market into an explosive topside breakout above the April 2010 highs. There really needs to be some type of a handle and it makes sense because I am sure there are plenty of people who want to get out at ‘break even’ who were too slow to sell during the big drops of recent months.
It seems like everyone is afraid to be aggressively bullish right now. It is a very unpopular stance in my opinion. The accepted stance is the depression scenario and 1930’s parallel which in my opinion is flat out wrong. I became tempted into this scenario for the last few months, but now I have done an complete 180 degree turn and now see a melt up instead of a melt down. The charting parallels between the mid 1970 time frame are much more appropriate at this point in my opinion. The current rally should have plenty of rocket fuel in the form of stubborn bearish sentiment as sentiment trader short term readings are currently indicated at ‘extreme pessimism’.
It is extremely difficult to switch from a very bearish stance to a very bullish stance overnight. It goes against basic fundamental human nature. To switch from extremely bearish to extremely bullish is a little bit like experiencing the emotions and sadness of a funeral proceeding for the first half of the day and then somehow switching 180 degrees for the second half of the day and acting very jovial, happy and the life of the party type mindset. It is an very unnatural thing to switch emotionally so quickly like that. This is probably one of the most difficult aspects of trading because it goes against fundamental human nature. It is almost as if one has to have the ability to completely ‘step out of the body’ of the previous emotional state and then rapidly change ones emotional outlook towards the market.
Remember the March 2009 bottom? It was a ‘V’ type bottom created by high levels of fear. The recent bottom of 7/1/2010 is looking like similar ‘V’ type bottom typical of bottom type formations on high fear. Bottoms are famous for being sharp and quick unlike the topping formation of February to March to April 2010 which was slow and gradual.