We have reached a fairly critical juncture in the potential for stock prices to continue higher or perhaps falter and continue what continues to look like a bear market.
The rally thus far off the most recent lows has surpassed my first counter-trend rally target of 1380 and is making its way towards perhaps the most logical point for a bear market rally to conclude, the 50% retrace level at 1417. It is this level that we need to watch very closely as 50% in any market or stock is a very powerful number.
You can see also that we are testing the resistance of the 90 week moving average with has been quite an essential point of support and resistance dating all the way back to the start of the major secular bull market in 1982.
With these two key levels in hand there is no question that the market is at or very near a make or break level and while the action has looked very reassuring on the daily charts, the weekly charts show us we are at a price level that we could see a complete reversal or at least some type of correction or consolidation. Odds do favor a move to 1417 on the S&P 500 so it really is at this point that we need to pay very close attention to detail.
I remain 65% invested in equities until such a time that we either get clear cut evidence that a new leg in the bear market is about to begin, or that after a pull back of sorts, stock prices will continue to move higher. I do favor a push up to 1415-1425 on the S&P 500 followed quite quickly be a sizable decline, but able to keep the most recent lows at 1260 in tact. From there I would be looking for one final push higher going as far as or near new highs in the upper 1500's.
The main reason I favor a pullback followed by another thrust higher is the simple fact that there simply remains far to much pessimism in the market place as the % of Bears continues to out number the % of Bulls and this bodes well for a continuation of higher stock prices.
It will be the developments over the next few weeks that will dictate our market posture probably for the next 12 to 18 months, so for long term investors especially, this is a very crucial time in protecting their gains.