As I stated in other recent posts, I will be watching bullishness every day (as I have been). I am in EWI's camp that think this is a Primary Wave 2 up rally and that the rally should, in theory, peak in extreme bullishness. The only real decent indicator I have for that is what Stockcharts.com provides in the way of Bullish Percent S & P 500, or the symbol $BPSPX.
Bullishness % had a double top peak at the 956 high and corrected some 47%. Of course the rally this past week has reversed this chart somewhat. It is now heading back up. However the market is near its top yet the bullishness is far from its previous rally high. That is an eye-catcher.
All 3 main indexes rallied 7% this past week. 2 of those days were strong up days indicating a near-term trend change in my opinion. The market closed above major support for 4 days in a row near 878 and finally buyers seen the price action and jumped in figuring this was going to be the best pullback they can get.
EW theory is all about sentiment. I do like chart patterns and TA and such, but from here on out, P2 should produce a peak in bullishness. So I will be showing the daily SPX chart more often with the $BPSPX superimposed as an indicator. The bottom line is I look for a new extreme in bullishness to help identify a new top.
Its an earnings run season it seems. Only 1 week old, there certainly appears to be enthusiasm for it. For those readers who believe GS controls the world, summer low volume is perfect for them to pump it up one more time and hand it all off to the stupid Joe Q. Public, who, after a correction in fear of nearly 9 months (remember VIX hit extreme in Oct 2008) may finally be warming back up to jump in the stock market again. They don't want to miss the rally and CNBC is pumping it every chance they get.... Hey that's the way it works!
The market is due for either a Minute wave [ii] pullback or a Minor B wave pullback of course. How low it will go is any one's guess and depends on the fear factor (VIX) bounce and total sellers. The 50DMA of the SPX might be a good bounce spot. It may be a quick one too. Why quick? Because I suspect there is a ton of short sellers looking to get the hell out of their positions with minimal losses or if they are lucky, break-even. The 7% up draft caught a heck of lot off guard probably. But buyer beware, I am just making an educated guess.
The thing about this chart I posted is that there is plenty of room for bullishness to climb. And it usually only climbs with a price climb. In fact bullishness on this chart is still quite low compared to the 956 top. That to me does not indicate weakness but rather a significant correction in bullishness has occurred which will now allow prices to finally close above 950 SPX. Once they close above 950, it should clear the way for a run to 1000 perhaps more. Resistance lines support that thesis.
My second chart shows that 950 is the marker the bulls need to beat. They need a close above it which hasn't happened in a very long time. Once 950 is taken, it really is a free run to near 1000. Sure there will be speedbumps, but make no mistake, 1000 is the next MAJOR hump. First we had 750, then we had 820. Then 875, then 950. Those were major layers the market had to eat through roughly. I may be off some, I am just trying to recall some battlegrounds.
So I really don't see a total market collapse from here just yet. Why would it? If everyone was expecting a B wave pullback, and the market corrected some 30% and some 87 points, why must it go lower than 869? If it does I would consider P2 may be over if it was to head under 850.
A 7% up week big fat white reversal candle is nothing to sneeze at. A correction would seem in order, but the market sure seems to want to get on with rallying and a close above 950 SPX.
But its also about the DOW. And 9000 is a nice number.