Bulls had quite the party last week. SPX broke through fan lines, Fib levels and resistance galore on decent volume and breadth, reaching our 1472 target in a big blowout party hosted by the ECB/GCC/FOMC.
We discussed this target as far back as March 18 [see: Big Picture]. It was refined further a few weeks later in my posts re an analog I developed [see: New Analog I’m Watching].
The timing ended up being off, as we made essentially two right shoulders in that H&S pattern, and thus reached the bottom in early June instead of early May. It also took longer to get up to 1472 than I expected – 3 1/2 months of gut-wrenching chop instead of the nice 3-wave move higher I charted.
SPX also fell further than the 1305-1317 target I originally anticipated. I amended it along the way to as low as 1295, never imagining we’d break the 1292 support level. But, in general, the analog played out pretty darned well — establishing new highs and turning many bears into bulls.
The great thing about reaching targets, of course, is the profits. Our theoretical long/short SPX portfolio is up about 55% in the 5 months since that analog was posted [see: results.] The scary thing is figuring out where things are going next — as it’s absolutely no fun giving any of it back.
Are we really on a sustainable path to SPX 2000 now that Bernanke has practically guaranteed the market will never go down? Or, are we due for a killer hangover — those 208 points vanishing faster than a Vegas bachelor party security deposit? The answer, as usual, is somewhere in between. Though, since I shorted at 1474 Friday, you can probably guess how I expect this to play out.
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