The main levels to look at are 1150 and 20-day SMA. We might get some rise at the beginning of the week, as fund managers will be doing their usual end-of-month window dressing (buying best stocks, selling worst)

The next week is Option Expiration week. Looking for some consolidation in 1160-1140 area. After that another push higher going into April. The major support is now at 1130, so until this one is taken out, the bullish case is alive and well.

EUR/USD is also stuck in the channel. It is finally braking out from the 1.3750-1.3450 zone, where we have been stuck for a month. I would be looking for a small pullback here at the beginning of the week. Then another push into 1.39, maybe 1.40.

Longer term charts suggest that the possible target for this coming reversal is 1.42, after that we will move back down. Though, this is just a pure speculation at this point.

After a consolidation (the like we are witnessing today), the market continued higher, even though the indicators suggested it was way overbought.

In fact some of the stocks I mentioned last week have pulled back a little, and have reached target levels:

ZMH – start accumulating at 59.30-59.70. Stop at 58.20. Target 65.00. 1/5 Risk/Reward.

RINO – has pulled back more than 4%, but has already managed to get into positive territory. Expecting a 50% rise by May.

CHK – buy now at 25.00-25.50. It is a save pick unless it trades below 24.00.

ADY – been burned in this one, but I believe it deserves a second chance. Right now it is stuck between 22 and 21. My strategy would be to buy 1/2 at the current level with the stop below 21. Add to the position when we breakout above 22. Looking for a gap close at 24.

Short term view on the market. Areas to watch closely – 1130 and 1115. Expecting to see some pullback next wee, but not more than 1-2% from Friday close. Then a rise further continues. I would personally like to see some base building before we approach 1150.

This is a longer term chart for SPX going back to August 2006. Look how the both circled areas look alike. If we use comparison analysis, we should get to 1200 by April Options Expiration. Then some sideways action is possible, as there is a ton of resistance above 1200 area. Though we might get as high as 1230-1250. I am really clueless, what happens next, maybe “sell in May and go away” will be the thing to do this year. We will see.

For the time being I am bullish on the market, unless we sell off below 1105/1085 in the next 2 weeks. If that happens, I will reevaluate my longer term view.

If there is now breakout today, I would be looking for a pullback to 1105. After that it’s anyone’s guess, what will happen next – a break up to 1130 and possibility of 1150, or a breakdown to 1080-1085.

Here is also a Volume-Weighted Average Price (VWAP) chart below. It suggest that there is a lot of Vacuum in the 15 pt. range right above us. So, should the move up happen, it will be FAST.

Still holding my GS puts, as the stock remains under severe pressure.

1085 is acting as a strong support and I would be looking for a rebound to at least 1113 in the next several days. The game plan is following – we might go to 1105 from here, then a pullback to 1100 area, and the another leg up to 1113 area.

Currencies also support this theory, with the EUR/USD unwilling to go lower and 1.40 acting as a very strong support. Looking for a pullback to 1.43  in this pair.

My only concern here, is that indicators don’t support my theory of a coming rebound – both Stochastic and MACD show no signs of any divergence whatsoever.

The above chart of SPX indicates, that the rising trend we have witnessed since March, is losing its pace. The only thing that might help this thing to go higher is a violent buying, as one we’ve seen in July. Right now, nothing suggests that this is going to happen, in fact the there are good chances that we might see 1080 by the end of January. Using Wyckoff Schematics, I have 1030 as my second target. This is nothing outrageous, as 9-10% pull back would be healthy for this market. Though there are some things that suggest, that bull is not dead yet.

The first bullish indicator is XLF. Financials have been lagging during the latest rally but the chart below indicates that they have finally found solid support and have a good chance of rising as high as 15.50-15.75. This is actually a pretty save play, as you can buy at 14.40-14.50 and place a stop below 14.20, giving you a nice R/R.

It may sound odd though, but XLF is also the sector that may trigger the reversal of the broader market. In this case we need to watch 14.40-14.00 area losely, as a drop below 14.00 might lead to a sharp selloff.

Other indicators of the reversal are GOLD and EUR/USD.

To support the bear’s case, EUR/USD must stay below 1.4480-1.45. To get more confirmation, I would like to see 1.4070-1.4050 by mid January.

The same thing is about GOLD price action, as long as it is below 1110-1115 price tag.

So, all in all this makes me a cautious bear, as the chances of another run and bump action in SPX are strong. Who knows, maybe the big layers, have dumped EURs, just to accelerate the rise in equities later? I don’t know that, so as a trader the safest option is to trade what I see… But HEY, enough of this, there will be a lot of trading days going forward, as for now:

Right now, we are in the market, where every small dip is being bought, a lot of positive news coming out, media starts to talk more and more about the “recovery”. So, all in all, the public’s mind is shifting towards “booming economic times ahead”, while some more sophisticated players are quietly selling their assets.

I believe, we will be stuck in a 70-90 point range till the end of the year. This is a good environment for a Wyckoff Top being formed. But it’s only a speculation at this point. Right now, the best way to trade this market is to ride it sideways, by buying support and selling resistance. There are also different strategies to multiply your earnings with options. Check out MarketWatch to find more about it. Click to get your Free 30 Day Trial of MarketWatch’s Proactive Options Trader Newsletter.

To be finally sure if we are ready to go higher or not, the market needs to stay above 930-935. At the moment I woudl suggest to cover 1/2 of your short position (if you are short) and try to go long the same size at ~915. In this case my short term target will be 930, where you might want to move your stop loss to break even.