The panick stage has began....bear capituation evident

I said here once that a rally has 3 stages. 1)Denial 2)Migration and 3)Panick. We are now officially in stage 3.

The move towards 900 as I eventually expected happened. I'm a bit disappointed in myself for not taking advantage of this prediction as much as I would have liked but better to have made a few dollars than lost a boatload like the typical trader has in the past 7 weeks or so.

The change in sentiment on the stock boards is quite dramatic. Bears have been silenced and humbled. No more "I'm 100% short here" type posts. It's also becoming clear that the "rally to the 200 DMA" trade is growing in popularity by the hour. After todays break of 900, I saw quite a bit of bear capituation from traders who were hanging on but couldn't take the pain anymore. The bears are now afraid to short the market at these levels...instead, they are going to wait until the market hits the 950-1000 range....they finally gave the market some respect....after getting their brains bashed in repeatidly of course.

I've also seen a great deal of cockiness from the bulls over on the SPY board. I've haven't seen this sort of cockiness from the bulls in a long time. Thus, I strongly suspect that an Intermediate term top will be put in anywhere from current levels to about the 920-935 level. A push to that level this week would render the market fully overbought on all time frames. However, I'm not going to dogmatically assume the market will top at that level exactly. If I see a clear sign of exhaustion at whatever price, I will pull the trigger. I am never the type to say "if the price drops (rises) to $X I will buy (short)". That to me is being dogmatic and telling what the market to do. The question I ask myself is: "How exactly did the price get to that level?" "Was it is emotional or orderly? If you are picking tops or bottoms you better be careful if your price target is hit by an orderly type move because at tops or bottoms emotions climax and so you need to look for market action that conveys an emotional climax not an orderly move because an orderly move suggests a continuation of the trend. Sometimes you don't get that crescendo wave of panic buying or selling to mark a top or bottom and instead you get the apathetic type tops or bottoms. Those types of turning points can be identified by repeated failed attempts to make headway in the prevailing direction followed by a reversal day. There's no guarantee of course that turning points are made in the way I described...sometimes the starting point comes out of nowhere like how his rally began. It began with a gap up due to Citigroup saying it was "profitable" for the first 2 months of the year. The day prior to that there was no sign at all of a reversal. However, in my experience turning points are often made in the way I described above.

So, was today's action emotional? Yes...because it began with a gap up (emotional buying) in an already extended rally and ended with a panic flurry to the upside right near the end. However, given the market closed right at the highest point of the rally to date, there is no proof that the buyers have exhausted themselves. Thus any immediate pullback via a gap down tomorrow that doesn't get filled would indicate to me that the rally is not over yet.

The ST indicators I track are almost at maximum full overbought levels. Could we get a serious pullback here via a gap down? You bet your ass we could...just don't expect it to signal the end of the rally.

I will be looking to pull the trigger on some puts/bear etfs very shortly....I just need for Mr. Market to tip his hand.