Massive Momo Update

People keep writing me asking if this rally is real or if they should be paying attention to all that bearish talk they keep seeing on the financial news. Quick answer: Yes, of course it’s REAL because it’s happening. And you already know my general views on listening to anything coming out of the MSM. Whatever they are telling you has little bearing with reality and usually only serves as a plausible explanation of events triggered by factors far outside our horizon. So in other words – it’s bullpucky and you’re better off watching your goldfish for valuable clues as to where the market may be heading next. Or let me make it even easier for you:

As if they’re going to tell you what they’re going to do next.

Alright, now that we’ve cleared that up let me share some perspectives that may actually add value to your trading activities. As events are unfolding quickly over the past week and as we’re pushing toward SPX 2200 I think that an extensive momo update would be appreciated. Judging by the weekly chart above it’s clear that the bears have dropped the ball big time on a long term basis. We are now detaching ourselves from a mind numbing trading range that tested our collective patience and imaginations to the max.

So what is the current momentum and how much more upside could this rally possibly have in store for us? I expected the VIX:VXO ratio to be scraping near all time highs but much to my surprise it’s actually DROPPING right now. Please understand that I’m using the VIX as the base when plotting the ratio (and not the VXO) in order to determine divergent signals more easily. Thus a drop at this very moment is a bit puzzling and suggests that we may see quite a bit more upside on a short term basis.

If you separate and overlay the two components on top of each other you’ll see that the VIX is actually below the VXO. And if you look at previous occurrences of that happening you will quickly realize that it usually suggested continuation higher.

We are just getting warmed up here – plenty more momo stuff where that came from. Please grab your decoder ring and meet me in the lair:

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Given all the above I am willing to entertain further upside but have now tightened up my campaign which currently stands at a juicy 7.5R. Let’s not get greedy, shall we? Okay, perhaps just a little