As we are now seven weeks into this rally, today we will be looking at charts that measure market sentiment, so that we can see how much strength underlies the current rally and so we can access how much further the indices can go. The first three charts do not show a daily plotting of the indicator, but show a moving average of the indicator. The daily values are hidden. Remember that market sentiment is basically a measure of bullishness and bearishness among all of the market participants.

The first chart shows a 25 day moving average of the total put/call ratio. You can see how high the indicator was prior to the July bottom. Higher prices represent bearishness and as this is a contrary indicator, these higher prices suggest that a huge market rally is underway. QQQQ is behind the indicator. You can see how the index has been basically flat over the past few years. Even though the index is only being shown on a small part of the chart, you can clearly see what we mean when we say we have been in a trendless market the past few years.

The next indicator has a 10 day moving average. The indicator is NASDAQ up volume divided by NASDAQ down volume. You can see that after major bottoms (and sometimes before), the indicator spikes higher. You can see how frequent spikes higher have been in the last few months. This is clearly a sign of bullishness and suggests that a major rally is likely to be coming.

The next indicator is of the NASDAQ TRIN. This indicator spikes higher prior to a market bottom. Even though the recent spike was not huge relative to the spikes in 2001 or 2002, it is quite large compared to the spikes in the prior few years. Therefore, the NASDAQ TRIN is suggesting that a major rally is underway as well.

The last chart is of the NASDAQ Composite. We are showing this chart so that you can see how another resistance area has been broken. The next stop is the Fibonacci retracement of 61.8%, which coincides with NASDAQ resistance, around the 2235-2240 area. A break of this area should begin the push to 2006 highs.

We have had to be patient the last five months, but our patience has begun to pay off and our gains should continue in the months ahead.