Why S&P 500 Can Rally Back to the 2007 High
As the S&P 500 hovers at its February 2011 high and the Dow toys with its May 2011 peak, many market participants are looking for an important top soon. While I am certainly aware of some good arguments for a new bear plunge--in fact I've been favoring a major top in the first or second quarter of 2012 myself--I think it's worthwhile to examine the body of technical evidence that indicates that a run at the former all-time highs may be in the offing.
My "BullBear" methodology requires me to always evaluate the potential of both sides of a given market. After establishing a solid list of potential scenarios, I examine the technicals of the market. Frequently the underlying technical setup will align itself best with a particular scenario and that will then become my favored market view. If the market technicals do not support any particular scenario, that's generally a signal that it's time to stand aside or hold an existing position. By constantly revisiting the technical condition of the market, I can re-evaluate my market view and improve my chances of keeping on the right side of the market.
I'm seeing the emergence of a set of technical conditions that could have more in common with the 2003, 2009 and 2010 bottoms than with a topping scenario. While at a shorter to intermediate term degree there are many technicals which support a correction of the run off the 2011 low, I am seeing significant indications in the longer term technicals that support an eventual move to the 2007 high.
When a cluster of significant Fibonacci relationships converge on a single point, it bears investigation:
The 161.8% Fibonacci extension of the moves from March 2009 to April 2010, July 2010 to February 2011 and May 2011 to August 2011 as well as the 261.8% Fibonacci extension of the April 2010 to July 2010 decline all converge very near the 2007 highs between 1552 and 1558. Frequently when a number of important Fib relationships convene in one place the market will be magnetically drawn to it....
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