Monday, May 4, 2009

How Long Can This Last?

Last Friday, the SP500 closed above the 875 resistance level and today the market surged ahead toward the next potential resistance level. Rather than repeating those levels here, I will refer you to go review these post, "To Be Continued.." and "Everyone Is Watching" for the resistance levels.

This bear market rally has defied many skeptics, and even the believers are now questioning how long this rally can last without a serious pullback. The longer this market continues to move higher, the riskier it gets for both the bulls and the bears. The rally is now entering into its eighth weeks. Being so extended, it is simply too risky to open new longs (unless you are day trading) and too early to go short. Under this condition, I would rather miss a few hundred points rally on the Dow than getting bull trapped. Like the musical chairs analogy I used in my previous post, it's not a matter of 'if' the music stops; it is a matter of 'when' the music stops. We all know a pullback is forth coming, we just don't know when and how extensive it will be.

Here are how the charts look like after today's rally:







Share It