The S&P 500 index is back at new and fresh all time highs. Maybe this is not the best time to be writing a bullish post, it could backfire and we could see a 2015-16 bottom style retest. We have just seen an incredible 25% bounce in about 4 months, volatility is depressed and just about to burst. However let me remind you, I wrote a series of posts in October, starting with Winter coming?, warning you we could see a market crash, and then in Jan I flipped the side asking myself and my readers if Is it over?.

I was cautious along the way. The bounce could easily have been a bear market rally, but getting to fresh all time highs should reduce that likelihood, right? We were getting constructive signs along the way, let me just mention recent The most important market in the world right now post.

And while we’re back where we left it a good half a year ago, let’s discuss the current environment and why the party might not be over just yet.

Let me starting by asking you the following question. As mentioned in the first paragraph, many are probably focusing on this scenario.

However, what if this scenario plays out instead, are you prepared for it?

Let’s take a look at the next chart, that is Russell 2000, the small cap index.

Would you agree that if small caps resolve above $1600 or higher out of this formation, it could be very beneficial for the S&P too? Would you also agree that the positive case presented above is likely? The underlying market is showing signs this could be the case.

On the flip side, if the small caps can’t resolve higher, and we start seeing weakness in the S&P 500 too, be cautious. Many will start pressing shorts on any weakness here, as double top and rising wedge formations will start appearing on their screens. However in this case I still believe lower prices could provide new great long opportunities.

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