The sp500 today pulled back on very light volume after the previous three day price surge and sign of strength. It appears that the early part of this week will still be somewhat light on the volume side which would fit in well with a bullish topside breakout scenario. It would fit well because I am looking for a pullback early this week on low volume down to perhaps the 1067 area.
Once that is complete it would set the stage for another topside rally that would break the April 2010 bear market resistance line. Usually on the third try a market or stock succeeds in getting a breakout or break down. In this case I think it will succeed on the break up, perhaps by next week.
On August 27, 2010 BestOnlineTrades did a post that looked at the volume characteristics of the SPY ETF and came to the conclusion that the market did not have enough force to bust down to new lows. The volume shrinkage comparisons were dramatic and warned that some type of topside reversal was at hand. The last three trading days of last week proved that point and seems to set the stage for a new bullish advance now.
There is also the possible head and shoulders bottoming formation that could suggest this next upside run could takes us close to the April 2010 highs.
I cannot think of any good reasons to be bearish right now. The only thing that would change my mind at this point is a pretty rapid loss of price support on the sp500 that fully retraces the previous 3 day strong rally. I view that possibility as extremely remote at this point. Instead I see us breaking topside through resistance by next week.