The stock market is set up for a huge rally, but it is likely we will have one more small pullback before it happens. It is possible that this rally could put an end to our long-term signal of buy in the coming months.

The first chart is of the NASDAQ Composite. At the end of the chart you can see blue Fibonacci lines that are being used to predict where the next rally is headed. If we use the recent inverted head and shoulder formation as the height of the coming move then 3000 is our target (or 2998 to be precise). You can see where there is strong resistance right above the 3000 area. Before we get to this point we believe it is likely that the index will pause at the first resistance line shown in the 2900 area. A small pullback will probably occur in the coming days, but the long-term trend is definitely up and a powerful rally will soon begin.

The second chart is of the S&P 500. Here, you can see the inverted head and shoulder formation in greater detail. The charts of the NASDAQ Composite and S&P 500 are quite similar. We believe that the S&P 500 will likely fall to 1506 before a run that breaks 2007 highs and pushes the index over 10% higher.

The Russell 2000 is looking much healthier. The index is likely headed to the 800 area before it resumes the long-term uptrend. 2007 resistance will be the first pause once it starts moving.

Even though we are likely to have a pullback in the coming days the stock market is set up for a powerful run.