After a horrid 2nd quarter, the S&P 500 is sure making up it's losses at a rapid rate. We've been rather bearish of late given the S&P was trading below its major moving averages that delineate bull & bear markets, with the prospect of these important resistance levels proving their merit with another leg lower. The only caveat we've had is that our models were near oversold levels. They never made it that far, but certainly they have now turned higher - with the S&P now gingerly breaking back above our resistance levels. This is material in our mind, and it has caused us - for now - to become tactically bullish. Our reasons are simple:

1. The bullish consolidation formation was confirmed with a breakout above trendline resistance;

2. The 40-day stochastic is rising from right at oversold levels; our proprietary models are based on the stochastic, so it serves a useful purpose here for illustration;

3. All the major moving averages - except the medium-term 75-day moving average - were violated from below; and,

4. Breath has been astoundingly good on this rally. Volume is a bit suspect; but we've found this argument not to hold water in the trading world any longer given the entire March-09 to April-10 rally was on low volume.

Therefore, our upside targets are 1120-to-1160, and we'll expect to see this develop by August-end...which pencil to paper would suggest a rally of another +11% in the space of a month. Now that's a tradable rally.


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