Upside Potential Develops

Last week was a wild roller-coaster-ride of a week but in hindsight it looks like emerging from the dust of all the volatility is a double bottom that has the potential to finally lead to a decent countertrend rally we have been expecting for some time now.

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Outlook:

Until we see prices regain the 50-day average (SPY $135.40) and hold for more than a day, price action should remain suspect. However, probabilities strongly favor a decent rally emerging from the current price base.

*While risk is high, higher prices early this week would actually lower risk as higher levels of support are established. We will need to monitor market breadth as prices move higher for confirmation, but we suspect that a sustainable upside move can develop from the base that began forming last week allowing some of that cash to finally be put to good use on the long side.