Bears on their heals now....correction finally comming this week?

Emotions are definitely running high now with the trading community. Bears are running scared here and for once are backing off shorting this market however, a lot of them, and I'm assuming a lot of other traders as well, have the SPX 200DMA as a target to try for another short which now stands at 954. This is yet another example of group think and if the market is true to this form one of two things will occur

a) The market rolls over before 954 gets hit

b) The market breaks through 954 and heads up towards 1000. If b occurs, I suspect there would be a knee jerk pullback at around 954 first just like there was at the widely advertised 875 resistance level.

I think this week will actually be the week we start to see the long awaited pullback occur given that now the shorts are backing off here. Remember, I said for weeks that the market would not stop going up untill the shorts stopped their top picking and people started embracing this rally. We are seeing both now.

With stress test results out of the way, people may start to believe it's safe to go back in the market....but that's where they could be wrong. The market needs a wall of worry to climb upon. Newbie investors don't seem to get this concept....and it applies to the downside as well. In an uptrend you need positive "surprises" to keep it going and in a downtrend you need negative surprises to sustain it.

I believe we are getting to the point where the "green shoots" concept is now well discounted into the market and now that we got stress test results out of the way with no negative surprises we are going to have to see more solid evidence of a recovery to push the market to the next level. Thus, the market may not care so much anymore about things getting "less worse"...it may want to see the real deal. I'm just speculating here as to how the market may start to react going forward...we will obviously have to see how that actually turns out.

I am going to be on the look out for any signs of buyer exhaustion this week because at the very least markets should get a mild pullback due to how ST overbought it is now...we may actually see a 5% drop start this week but it could start from slightly higher levels i.e. around SPX 945.