The purpose of the stock market is to make fools of as many men as possible

I hope by now you truley believe in this motto. This summer both bulls and bears have been chopped up into the meat grinder by the market but it's the permabears who have been taking the worst licking as they have been fighting this bull market market tooth and nail for over a year getting crushed as they religiously followed the advice of the popular gururs du jour, namely Roubini, Whitney and Pretcher. Mr. Market just loves to humilate gurus and their followers once the guru gains world wide noteriety for making a few good calls.

A couple weeks ago I hypothesised that it was likely that a convincing upside breakout of at least 20 points above the "trading range" would be needed before this rally would end because that's what it's going to take to suck in enough weak longs while capitulating enough weak shorts. I think we are getting there but we still aren't quite there yet. On BNN I'm noticing more and more guests wax bullishly talking about how the market looks good because of this breakout and the favorable seasonality comming up. A lot of these bullish folks are the technically inclined....the exact types that I said before who will chase this breakout. These clowns are weak and will bail when the market drops below 1130 in a convincing way. At the same time though, I'm noticing that a lot of trapped shorts from prior weeks are stubbornly not capitulating and some are still trying to pick tops. I can sense their patience and frustration level is starting to redline though. Also, rydex traders are STILL stubbornly not embracing the long side, however, it seems as if we are one rally away from that happening.

Therefore, based upon what I see I think the market can still go a bit higher here but we are getting close to the end of this...I'd guess within 1-2 weeks. I know I said I didn't like the action of this rally because it had a lot of the gaps early on but the relentlessness of the rally is indicative of bull market behavior similar to what we saw in 2009. So, I'm thinking we are eventually going to see a short but sharp drop in the market to about 1100 once this rally is done and not a full retracement. Chances are that if we see this retracement most of the damage would be done with a few big down days once again causing most battered bears to miss out on the most of the downside as they cover too soon (because they been conditoned over these past few weeks to expect a bounce after modest downside). Obviously this is just guesswork on my part. In no way am I married to this outlook...it will all depend on how conditions look as everything unfolds.

Should you press longs in hopes of another perhaps final pop to 1160-1170? No. The risk/reward isn't worth it. If my outlook turns out to be correct you're looking at 50 points downside risk vs 20 points upside potential. Therefore takes some off the table now. If we pop higher take more off. But hey, don't listen to me....wtf do I know lol!...seriously!