This type of market action builds up buying pressure and once these divergences are resolved, they will be resolved in a big way as it is a general rule that the longer divergences are present, the larger the counter move will be to those divergences.
Not only is the hourly chart, or ultra short term looking very bullish, but the short to intermediate term is getting very bullish as well. This is an impressive feat, considering the fact that not 2 weeks ago there was some legitimate concern about how the bullish sentiment was holding up in the face of sharply lower prices. It looks now as if these factors have completely reversed and most investors have jumped the fence to the negative side. You will recall that the last time we had such a sudden shift in sentiment was in early October with a shift towards the bullish end. This was promptly followed by the current decline we have appeared to have finished. So in keeping with this theory, the market should have quite the exceptional year end rally.
The intermediate term model is also flashing some very bullish signals and called the November 21st low as the low for the year. Although the market price wise was lower in mid August, the intermediate term model takes 4 other factors into account other than price alone. This model is calling for the S&P 500 to finish the year at 1587-1593 and the last 2 weeks of December being an absolute blow-out to the upside. Of course the intermediate term model is a neural network so it will continue to evolve as the trading continues this year, but as of now this is what the model calls for.
We continue to buy weakness and have completely removed our hedge from the long term core position equity holdings. For those who wish to take a little more risk, you might want to consider some February 2008 SPY options about 10-12 points out of the money. If the intermediate term model holds true to its current outlook then these options should have the best bang for your buck and a risk level that is above tolerable.
I look forward to next weeks market action as it should be a strong indication of what we should expect in December.
I am also just about finished with the 2008 equity market outlook and should be posting this outlook sometime in December. A sneak preview of the outlook is for a great 2008, but a weak 1st quarter.
I hope all of you had a great holiday and lets all have a great trading week coming up and remember, the Day Trading Posts and the Charts posted at the end of the day can all be used on daily and weekly charts as well. So even if you do not day trade, they offer an excellent glimpse into the technical side of the market.
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