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How High Can This Market Go?

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July 09, 2010 – Comments (4) | RELATED TICKERS: SPY

Bears are getting a bit nervous in recent days from the broad-based rally the markets have seen since the beginning of the month. The chart below incorporates the use of the Fibonacci retracement tool, which is very useful for measuring/predicting the extent of pullbacks in a bull market or rallies in a bear market. At this point I can't say that I am all that surprised that we've gone as high as we have, thus the reason for why I have been hedging my short positions with one gigantic long one. But as you can see, the 61.8% retracement level will prove to be much more difficult to break through than it was to push through the 50% retracement.

On the last rally the market saw, we kissed the 50% retracement level before heading southward again - obviously this rally has gone a little higher up. But don't try to guess the extent of this rally, it could go much higher then we expect and if that is the case, you don't want to be blindly shorting this market in the process and hoping for the market to eventually validate your belief. Instead remain in control - slowly add positions as the market provides you with the opportunity, and continuously hedge yourself against such irrational behavior that the bulls may be exhibiting.

Here's the S&P Chart Analysis.

4 Comments – Post Your Own

#1) On July 09, 2010 at 4:09 PM, Griffin416 (99.98) wrote:

How high? 110-111 in the SPY. It not only has been a support/ resistance line for quite a while, it is also the 200 moving average, which the market thinks is important. Don't short the market when the bulls have control. Trends on wall street are always long then you think they will be

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#2) On July 09, 2010 at 4:25 PM, dpdoor (36.35) wrote:

I do believe in the idea of the 50% rebound but since we had such fear last month and now the consumer is out buying cars and remodeling their homes it will drive up the market more.

I've been saying 10500 on the dow then sell half of my stocks. I am not as sure about GE anymore since it was going to do well from the stimulus and now I'm not so sure. I still like Ford, they cut back on expenses way before anyone else did; Cars are cool and the money you save on gas makes the monthly expense about the same as a few cell phones.

10500 would be the third failed rally. 11300, 10700, 10500 then the economy better be doing great or lookout!

 

Want a good economic report? It's like getting a good weather report; open the window and look out side. See all those paper plates on the new cars? See the work going on next door? That news takes months for the government report to reflect and just as long for Wall Street.

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#3) On July 09, 2010 at 5:02 PM, davejh23 (< 20) wrote:

"Want a good economic report? It's like getting a good weather report; open the window and look out side. See all those paper plates on the new cars? See the work going on next door?"

I have noticed a bunch of temporary plates lately...not all on new cars, but it does look like people are buying more cars.  As far as remodeling, etc..., I haven't seen a thing for a LONG time.  About two years ago, there were quite a few foreclosures that people were buying and fixing up...they thought they were cheap, but now it looks like they paid 30%+ too much.  Since then, I haven't seen a thing.  Earlier this year there was a sharp decline in real estate listings in my area, and nearly every foreclosure in the area was snapped up ahead of the tax credit expiration.  There used to be for sale signs everywhere and then they were quickly disappearing.  However, inventory has doubled in just the last 2 months, and the for sale signs are back.  So, I wouldn't be suprised to see US auto sales suprise to the upside, but I would be very suprised to see any good news on the housing front.

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#4) On July 09, 2010 at 8:46 PM, checklist34 (99.73) wrote:

2300-3000 by 2020-2025

:)

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