big up move ahead

Here is a daily bar chart of the  cash S&P 500 covering the past two years' activity. I think the market has dropped into a very strong support zone (green oval) and is about to begin a sustained up swing which will take it to new bull market highs.

The first thing to notice is that the drop from the April top has now just about equaled the size of last year's November break (blue dash rectangles). This correction has at the same time dropped the market down to strong support which is found at its October 27, 2011 top (green dash line). The S&P is also trading on top of the lower channel line of the purple up trend channel I have drawn on this chart. Finally the market is sitting on top of its rising 200 day moving average (wavy red line on the chart).

I think trader sentiment is quite bearish, comparable to the bearish sentiment extreme seen at last October's low. My five week moving average of the percentage of bears relative to bears plus bulls as reported weekly by AAII is now at its October high point. The moving averages of the equity put-call numbers on the CBOE are also at or past their October highs.

Of course there are plenty of reasons to be bearish here and most of them center on the European debt situation. The market is discounting potential trouble from the other side of the Atlantic. One interesting thing is that the levels of bearishness I see are comparable to those at last October's low even thought the current decline has so far been less than half as big in percentage terms as last year's drop.

All in all it looks to me like the S&P is set up for a big reversal to the upside. I still think this is a bull market - witness the rising 200 day moving average atop which the market currently sits. So my expectation is for a move at least into the high 1400's over the coming months.