Even though I am not posting as often as in the past, I will try to do it at least every time something significant for the intermediate term takes place.
The intermediate term bear market rally I have been talking about has approached the previous SPX highs. This was somewhat expected given the anticipated bounce in the economy after the spring - summer slowdown.
The rhythm of the rally seems to be changing. I do not think we will see steep 1-3 days sell offs anymore. Here is a monthly SPX chart with important resistance levels drawn.
The eventual top will take place as the market becomes overbought and breaks through one of these levels. A break to new highs took place as the market topped out in October 2007. It might happen this time too.
As to being overbought for the intermediate term, there are a few indicators that are close or even already there. This tells me that a top is close by, probably in the first week of September.
Here is the 5 day ema of the put/call ratio. it reaches the red horizontal line as a bear market rally gets overbought. It can stay there for a short while before the market turns lower.
Here is the average rate of change indicator. It reaches the purple horizontal line as bear market rallies top out. This indicator going significantly above the line is usually a first sign that the bear has morphed into a bull.
As these indicators signal a top and as the market comes above the significant levels I talked above, I will make an investment on the short side. Since this should be a long term turning point, I will keep this investment and add to it as future opportunities (read: bear market rallies) present themselves.
As for a target expectation for this future bear, it is hard to say. The 2009 lows are not out of the question as things could get really ugly. Even lower is also a possible scenario.
However, for the long term, it is better to target a process, a context and not an outcome. But I will elaborate on the different scenarios in a future post.
