I've been thinking a lot this weekend about how a hearty rally over the coming month or more would feed in to the larger picture. I have the following conjecture to offer:
That is, something along these lines:
(a) a push higher, beginning this week, lifting the S&P to the ~1340 level;
(b) a stalling by sometime in July, at which time the indexes will have lifted high enough to give relief to the politicians and re-excite people about IPOs like GRPN, P, and so on;
(c) a weakening in August, accelerating in September, completing a well-formed right shoulder;
(d) a big break in September or October down to ~1130 on the S&P
It's dangerous to get married to these projections. I learned that painful lesson last summer, when an immensely well-formed pattern stabbed us bears through the heart once Bernanke did his Jackson Hole routine. I think the possibility of a tumble like the one outlined above is stronger for a number of technical reasons.
In any event, I am inclined to cover shorts this week – – perhaps very early on – – and carefully establish some long ETFs in an attempt to take advantage of such a bounce. It certainly seems that things are stretched to the downside right now, and, ironically, the strongest signal to me to get out would be a really weak opening on Monday morning.
