SPX 920-945....the danger zone

Like I suspected, buyer exhaustion has not been completed. Despite the continued horendous destruction of capital caused by the FAZ/SRS/SKF troika of death I still see plenty of bottom fishing there...this is amazing.....behavioral finance in action I tell you.

If anyone were looking for a spot where the market could stall it would be in the 920-945 zone. Is seems like the majority of the wrong way trading community (which are primarily bears) have their sites set on 950-1000 as a target to start their top picking again...therefore given how the market rarely likes to accommodate the consensus I would say that 920-945 area would be an area to watch for a turning point. If we hit the 950-1000 mark..watch out....because we could end up blowing past those levels too.

So what happens after the rally runs out of gas? Do we crash like so many of the bears expect? Don't count on it. The more likely scenario would be a consolidation after an initial sharp pullback. Why? Because there's still plenty of skeptics out there. Bears claim everyone is bullish now. There is absolutely no evidence of that whatsoever. Latest figures from the Investor's Intelligence Survey show that bulls have risen to 40% and bears have dropped to 32%. I don't call that excessive especially after such an epic rally. And lets keep in mind that since July bears have outnumbered bulls for the vast majority of the time and when bulls did outnumber bears it was only marginally so and didn't last very long.




During the last bull market when the bull/bear ratio got to current levels it would quite often signal an IT bottom. When using market indicators you need to realize that extremes have different thresholds in bull markets vs bear markets. In bull markets optimism and "overbought" are natural conditions and therefore can be tolerated much more than in bear markets where pessimism and "oversold" are natural conditions. Thus, if this is a bull market, we can go a lot higher before reaching an extreme in optimism. But let's not get ahead of ourselves here....

The surge in the market this week smacks of unsustainable panic type buying. Any time the chart starts to look parabolic it's a good sign the end of the move is immanent. I still haven't seen enough signs of buyer exhaustion but I think it's immanent. But judging by the attitude of the battered bears I think it's very likely the market will just go sideways for a while after pulling back initially. The same people who have been nothing but wrong in the past several weeks seem quite sure that a crash back to the lows will occur before the year is over...they act as if it's a given.
And let's face it, the vast majority still doesn't believe in this rally and those who are bulls are only cautiously optimistic always looking over their shoulder. Those are not conditions for a crash.

Unless I see the majority fully embrace this rally as the real deal and drop their guard, downside will probably be limited. I will be watching very closely to see how this market and its participants behave once this rally runs out of gas.