Panick stage of rally has begun...FAZholes crushed

Today was pure, unmerciless bear destruction. From what I gather a lot of bears seem to be in FAZ and/or SRS these days and man did they get cleaned out today big time. I was dead right about FAZ and SRS being overcrowded trades. Much better than expected earnings from Wells Fargo ignited one hell of a rally today in financials. FAZ down 41%, SRS down 24%....unreal! I definatley saw capitulation on the message boards with horror stories about how some people had 50-70% of their portfolio in FAZ and had to take huge losses. However, there are still many people who are trapped and don't know whether to sell or not praying for Monday to bail them out. Therefore the capitulation may not be over yet. I don't think the bears have given this rally enough respect yet because they seem so eager to pounce on the market on the first sign of weakness. Before this rally is over for good that attitude will change mark my words.

With the SPX now closing above 850, we have a technical breakout of a downtrend channel that everyone has been eying. This could lead to a blowoff move to end the rally. Goldman Sachs reports on Tuesday and the stock is acting like the number will be better than expected.

The VIX is imploding which I mentioned is a key ingredient to signal an immanent top. Another thing I want to see is a spike in bond yields. It's been rising but only grudgingly so. I'm also noticing Cramer getting very arroagant mocking the bears. Near the lows in March he was suicidal, now its like he has overdosed on Prozac.

I believe that a lot of newbie investors got married to the bear case in a similar fashion to how they blindly bought into the new era bullshit during the tech bubble in the late 1990s. They are now learning a very hard lesson that the market punishes group think. You can spew all of the fundamental arguements as to why the market should go up or down but my experience shows that when everyone puts on the same trade they will get punished for it and it won't stop until they throw in the towel. Bear rallies can last several months if need to convert skeptics and washout weak bears. This rally since early March has no doubt destroyed most if not all of these newbie bears.

My thinking all along has been that this rally could last until mid April-early May. I'm keeping an open mind as always. I'm waiting for a clear sign that this rally has exhausted itself. Like I said yesterday, we are close but not there yet. Based upon the charts and indicators there is room to run up to about 880 on the SPX. This is a max upside target subject to change. I'm quite confident though in due time we will see sub 800 in the SPX. Should be an interesting next week.