Finally, our patience is beginning to payoff. The technical picture of the stock market has improved dramatically (which is of little surprise to anyone who has seen the last two days of market action). Today, the S&P 500 broke above the confirmation point we have talked about for weeks now (the 1290-1293 area) and the NASDAQ 100 and Semiconductor Index continue to outperform.

The first three charts tonight show the relative strength of one index verse another. The first chart you have seen before, SMH divided by DIA. You can see how the Semiconductor ETF has broken the downtrend channel and continues to show great strength. The next chart is of QQQQ divided by the NASDAQ Composite.You can notice the huge swing higher in the last few sessions. This is not unlike the move from the end of June 2005, when we first triggered the buy signal. The next chart is of QQQQ divided by the S&P 500. Here, you can see a dramatic change! The NASDAQ 100 has broken above the downtrend line and has showed incredible strength recently. The fact that technology is beginning to lead is extremely bullish for the market.

The next four charts you have seen many times before. The first chart shows how the S&P 500 finally broke above its strong resistance area today. As we have said for weeks, at this point we expect a move to 2006 highs at a minimum. The next chart is of the NASDAQ Composite. You can see how the index ended right on our second major resistance area today. Next, we have to break the 2200 area, followed by the June high. This would then carry the index to 2006 highs and possibly beyond. You can see in the next chart of the Dow how the index is right at resistance. As the S&P 500 has already broken its resistance and as technology is showing such strong leadership, we expect the Dow to break above this resistance and push to 2006 highs and beyond. The last chart is of the Russell 2000. At this point, this chart is probably looking the least healthy. Even though the NASDAQ Composite has fallen as much as the Russell 2000 since the high in May, the recent comeback has been extremely strong for the NASDAQ. We can't say the same for the Russell 2000. The index has to break above our downtrend line, 730, and 740 area before we can know for sure that this index will follow suit and move to 2006 highs.

At this point, our work tells us that it is a near certainty that the market has reached its bottom and that the recent pullback (from the May highs) was only a correction, not the beginning of a bear market. As we have said many times, 15% corrections do happen in long-term systems and if you were able to sit through the recent fall, you can feel comfort in knowing that this market has been tremendously difficult to time and it should only get easier as the weeks and months progress.

We have had a huge move in recent days, so do not be alarmed if the market decides to pullback in the coming days. If it didn't, we wouldn't be able to have huge gains in the weeks ahead. Remember that healthy markets rarely go straight up and the ideal market for timing is a healthy one.