September 14, 2012 - the bear is dead!

For the third time this bull is rising from the grave to haunt short sellers. It first happened in 2010 and then in 2011. Bernanke's black magic (read: QE) is on the job again in 2012.

Leaving jokes aside, this is good news. Nobody, except childish permabears like Tim Knight at The Slope of Hope, craved a bear market and a recession in the current context of the global economy.  It could easily have morphed into a depression with grave consequences. The sad truth, I believe, is that this depression has only been postponed.


Here is one indicator that made me ditch the bear market scenario- 52 week New Highs - Lows:

It has reached record levels for this bull. There are also other indicators that are stronger than they should be during a bear market rally.

The spike in NYHL is a sign of strength, but also a sign of exhaustion for the short term. As it happened in November 2010 after the announcement of QE2, I think the market will correct for a few days. A drop in the 1420-1430 area would represent a nice opportunity to go long.

Supporting a coming correction is the fact that the SPX settled above the important 1440 resistance and then reached the 1460 level. Usually, the market pulls back after reaching such important levels.

The intermediate term leg should be fine though. The market is up only about 16%. A 20% move would bring it to 1522 - the next important level on the upside.

Here is a monthly chart of the SPX showing these levels.