I last posted here that I thought we could see some upside because everyone was so bearish. Well, 3 days later, we are some 65 SPX points higher, and it seems the bearish crowd has been slaughtered. Well, because of this, I now think we'll see a reversal that could bring the S&P to new trend lows (i.e. 800-850 or so).
Notice the rare expanding triangle pattern that has unfolded. This is a consolidation, and should resolve to the downside to complete at least an ABC from 956. This pattern is awesome because it tricks both the bulls and the bears two times, leading to total capitulation by both groups before continuing the trend. Check out this post on Slope of Hope, those are pretty low spirits coming from a bear on the most bearish of blogs.
Also notice that price is testing, for the first time, the trendline which connects the May '08 and Sep '08 highs. Trendlines are rarely broken on the first pass. You normally get some kind of reversal before breaking through (if it does break through at all).
Finally, I was very pleased to see the market march right through previous resistance at 928 without a single correction. This is not bullish, because it indicates that everyone is on bullish. Think about it: if there were any bears, we would have had a pause near 928 as people would unload a bit. This one sided behavior tells me that the investment crowd has shifted to bullish on the short term.
In conclusion, don't be surprised if the recent rip turns out to be a false alarm. However, if prices do not reverse quickly and stay below 935, I will have to adjust my analysis.