Furious Rally

Fast and furious on the way up.  There was a selling panic on the way down, and since the Friday afternoon bottom, it looks like a buying panic.  Now the last 9 years of S&P trading are probably popping up in the minds of at least a few money managers, thinking, is this another V bottom?  I am not in that V bottom camp, even with this furious rally, just because of the overextension higher in January, the speculative froth at that point, and the late stage of the market cycle that we are in.

That being said, I am not so sure we'll get a retest of last Friday's lows like many believe.  It could very well be a retest of the daily closing low last Thursday towards 2580, or perhaps a bit higher towards the December post tax cut bill low at 2625.  There is still a lot of speculative demand to BTFD, so that should provide good demand if we get anywhere close to 2600.  On the other hand, so many weak hands have gotten in since the beginning of 2017 that I can't picture a V bottom higher, especially after a 340 point drop from peak to trough, a 12% drop that hasn't been equaled since the panic in early 2016.

Also, I am looking at a market that is going higher, now around 2735, but the VIX bottomed out yesterday at the open, even though the SPX was at 2715 at the time.  Since yesterday, the VIX is inching higher even as the market goes higher.  Obviously there is demand for volatility at these levels, even as the market keeps going up.

I previously stated that a top to bottom range of 2540 to 2740 was likely in the coming weeks.  We broke the 2740 area overnight, so I am wrong about the range.  But I still believe the upside is limited from here in the short term, thinking a possible top of range at the start of the panic and gap fill zone at 2760, from two weeks ago.

Also from a timing perspective, post Presidents Day/ Chinese New Year holiday last gasp buying could propel us to a short term top next week, hopefully for a potential good risk reward short around 2750-2760.

It looks like the bond market has stabilized for the moment, despite hot CPI numbers, so I don't expect another rout in the stock market like we had last week.  But we should still have some leftover nervousness and choppy trade as investors adjust to the new higher volatility regime.