Here's a look at the big picture, using the weekly chart of the ES. Again the broken trendline which I pointed out in the middle of all that mess over in Europe, was what I believed was in play. Turns out I was right as we got the pullback into the long position.
I want to point out something, let's re-examine the sentiment that was in the markets on each low from the March lows. We made our market bottom in March when the government had just taken over 40% of some of the largest institutions in the country and complete nationalization was the heavy talk on the news.
We made our next low when the talk was "sell in May and go away" the dreaded head and shoulders pattern that even I must admit was caught up in. And once again the sentiment was, this is it for the markets.
We made our last low a couple of weeks ago when the talk of Greece and European debts made sentiment feel like fall '08 once again. We bottomed that weekend when things seemed like it was all downhill from here.
I want to point these things out to establish the pattern in this market. The usual pattern in a normal market is to be a buyer when things are bad, and when things look like they can't get any better, although it's not an invitation to sell right then, but to be cautious. Fall 'o8 was a historic event that only happens once a decade or generation. I am still bullish and am sticking with my prognosis of the 61% retracement level around mid 1200's probably by summer. The only thing that would convince me otherwise would be if markets accept value below SPX 1050.
Take a look at the drop in the SPX during June and the last drop in January, you will see a 9% drop each time. As long as the market keeps the rhythm there is really no need to get bearish yet.
Markets will always favor the long side, because of the potentially unlimited returns it brings, whereas shorts can only make 100% returns at best. This game is all about making money.
In conclusion, I believe the market will hit 1230's or so by summer. In any case I don't see any further weakness dropping any lower than SPX 875's. It would take a catastrophic event at this point to even get anywhere close to testing the March lows, at least for the rest of this year.
Again, just my .02