As a thought experiment, I felt it would be interesting to imagine how high the countertrend rally could possibly go (given the manic state of affairs, I'm sure some bulls are thinking "3,000 on the S&P" just like, in early March, some bears were thinking "Dow 1000"), but I wanted to try to view this rationally. Take note these are not "predictions" – – I simply wanted to take a few charts and imagine a "worst case" scenario. Here they are (and I've penciled in a somewhat ludicrous "path" on the first one to show what I mean).
I will leave you with one last thought. Take a look at this chart:
The above is the AMEX China Index ($CZH). The arrow I've placed is from almost precisely one year ago, last May, when the bulls were whooping it up that the "bear market" was over (glare).
We are just about at that same underside of the trendline, and this rally has been far, far stronger. Could prices punch through that trendline? Sure they could; Lord knows recently that the places prices "should" reverse haven't been heeded.
But the psychology back then was similar. The bears were dispirited. The bulls were obnoxious and tittering. And the atmosphere on bearish blogs was just hateful (I am amazed Atilla & company even keep their site up; with all the crap going on over there, I would have simply shut it down and let the trolls find somewhere else to reek, although they'd probably just show up over here).
I have a profoundly Nietschian attitude toward this foolish rally. But it is healthy to be open to the prospect of "greater fools" continuing to pile in, because if you think most people have any idea what they are doing, you are giving them far too much credit.
