It looks like we could see an upside breakout any day now that could push the market potentially to the 900 level on the SPX....but this would likely lead to a buying climax marking the end of the rally. Playing these types of blow-off moves is best done via an all or nothing option bet because the odds of getting whipsawed in either direction are high.
The reason I believe we can see a breakout is because a couple of important hold-outs that marked prior tops as mentioned previously are still not there....however, one of them has now fallen into place. We got a pop in bullishness from the Investor's Intelligence survey. 43% of advisors are bullish and 34% bearish. This was about the same level reached in the last week of December. Markets continued to rally for about another week and then made a top.
What we are not seeing to mark a top is panick type buying. Notice how the market tends to sell off in the morning and then claw its way back to the green by the close like today. At a market top there tends to be reckless buying, i.e. markets gapping up when they are already very overbought.
Although there are clear signs of the trading community starting to embrace this rally, I still see quite a few stubborn bears out there. I get the feeling that a lot of bears have been shorting around the 850 level and some feel 875 would be as high as it gets....I originally did too but I now think this is too obvious. This is why I feel that 875 would be taken out. This would probably cause maximum pain for the bears and make them cry uncle.
Check out this message posted by a bear trader "i think bears are looking real good still. i think anything above 880 and were in trouble"
And another from a trader who is constantly bearish with numerous failed attempts at top picking the rally.... I'm looking at a close above 860 as the death blow to the bear case ... at least for a while
Things should get interesting in the days ahead....
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