Bears finally giving rally some respect....

Bears finally giving rally some respect....

I've been saying for a while that this rally won't end until the wrong way top picking bears become afraid to short fearing that the upside potential of the market is significant. Browsing the message boards over the weekend it looks like this is happening. These bears along with others are now warming up to the idea of the SPX making a run to the 200DMA, which is at about 963. I've also seen many mentions of SPX 1000 as a target. This is by no means a broad consensus yet but it's definitely a thesis that I see gaining a lot of momentum.

I've also seen some capitulation from shorts now that the SPX closed above the much watched 875 resistance level.

One particular short that has been posting for weeks how "bs" this rally is and who claims to have been loading up on shorts via FAZ calls all the way up said this on Friday:

Closed all my shorts today. In cash now. And day trading only. No projections until I see a clean break.

Given this change of heart combined with the signs of froth I mentioned, it would be wise now to be on the look out for an IT top within the next week or 2. Also, given that the close above 875 is only marginal there's still quite a few bag holding bears I'm sure who are on the bring on capitulation but haven't done so and therefore I think there will be one final push higher to about 890-900 to solidly convince any remaining hold out bears to give up and joining the "rally to the 200 DMA" camp. Once that happens we could very well see a swift sell off to 855 to shake out these weak bull converts. That would create maximum pain and frustration which I always believe the market seeks out to accomplish.