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The ES should be able to rally to at least ~1185, where there are a lot of old longs that would relish the opportunity to get out there with a scratch, and could very well end up testing the ~1230 area - 50% retracement of the down leg,
Equity markets surged early today on news that Warren Buffett agreed to “invest” $5BB in BAC, only to sell off from 1188.50 as DAX futures were aggressively sold as a hedge to circumvent the European short selling ban. But, unlike yesterday, ES closed weak on the day, in the lower half of it's range. Whether it was Kris Kringle or Ben Bernanke, providing the Bounce and Bail, before the Jackson Hole summit tomorrow morning, trapped longs must have felt that Christmas had come 4 months early, as their prayers were answered and they were given the gift of exiting their longs at break even.
Of course, the rally began a week ago, only to end abruptly, and trade back down to its lows at 1,110 -1120. And only after a 4-5 days of testing that area and suffering more than a few false starts, during which the index closed near that 1,120 level each day, did the market finally rally. It was initially supported by extremely oversold conditions, but had begun to garner some other underlying strength as well, when the market was accepted above the 1145 level.
Throughout this period, the bullish sentiment had increased, with this week being the third consecutive week. According to the American Association of Individual Investors (AAII), bullish sentiment rose to 36.44%, which is the highest reading since the end of July. What is so surprising about this fact is the S&P 500 is still on pace for its fourth worst month of August in history, and is trading near the lows of the year.
The implication then, is that expectations of further easing are running very high, which also means that there is plenty of room for a major disappointment, and a retest of that 1120 level once more. On a Bernanke bounce however, we could see the market trade back up to the 1230.00 level, but I would expect it to fail from there.
looking for 125 area on the SPY for an entry. It depends on how the market reacts around there, then ill take a short. this is way too low for a short entry still. That capitulation i was talking about needs time to work itself out.
