Many commentators have been discussing the possibility that the market has topped, but we believe that the move higher is just beginning. Not only has sentiment been mixed after such a huge incline (not an excessive amount of bulls yet), but our long-term system is extremely far from being overbought. We are less than 25% of the way to a sell signal. To put this in perspective, a neutral reading is around the 65% area! This can change rather quickly, especially if the trend continues in the days and weeks ahead without a more significant pullback, but even then we have a lot more room to grow before we reach a sell signal.

The first chart is of the NASDAQ Composite. Some commentators have mentioned that the index is reaching resistance and forming a possible double top. Rarely do indices top on a double top formation. Remember, we are trading indices not individual stocks. The personalities are extremely different. Even if this was one of the rare occasions that an index topped on a double top formation, the last two days have put the index above the April 2006 highs and began the process of invalidating a possible double top formation (April 2006 would be top number one and recent action would form top number two). We believe that the index is in a cup formation from April 2006 to present. If this proves correct it would be quite possible for the index to move the height of the cup higher. As the height is around 300 points, we could expect the NASDAQ Composite to move to the 2700 area this sell signal (the current price of around 2400+300).

The Russell 2000 is also in a cup formation, although the formation is not as clean as in the NASDAQ Composite. As the height of this cup is around 110, we could see the Russell 2000 move to the 890 area this sell signal (the top of the cup is around 780+110).

The last chart is of the S&P 500. Here, the formation is quite different. As we have mentioned before, we believe the index will push to the higher resistance lines indicated on the chart this sell signal.

As you can see, the NASDAQ Composite and Russell 2000 could climb over 12% from here and the S&P 500 could move over 7% from today's close.  Our long-term system is far from overbought and we remain very bullish in the long-term. With today's move being on very high intraday volume, a pullback here would be expected.