Bottom Looks Better and Better

It is a little sloppy, but a technical bottom on a lot of charts are starting to look better and better. Yes, I have had a few drinks with dinner, but I have not lost my senses.

Consider exhibit #1. The COMPQ has been up 5 of the last 6 weeks (including this week), and the S&P and the DJI have been up 4 of the last 6 weeks. The bears can't deny those facts.

Exhibit #2 is that the VIX has broken down. The fear gauge is at its lowest level in 2008 (see chart). Everyone is seeing the same data and it is telling us that the credit crunch may be improving slightly and it is at least definitely not getting materially worse. Earnings have also recently taken a turn for the better, making folks on the sidelines think that they are missing out on something.

Exhibit # 3 is the COMPQ chart. This is a market that wants to run. The bottom was put in and retested and a cup and handle has been put in since the end of February on the daily chart.

Exhibit #4 is the transportation index (see chart). It broke out today and cleared major resistance. Transportation is often a bellweather for a major move up. Dow theory may live.

And finally, Exhibit #5 is the financials shown by the XLF (chart). It is possible to imagine a major rally without the homebuilders but impossible to imagine one without participation from the financials. A major test of the $24.30 area on the XLF was turned back this week AGAIN. This is proving to be a major firewall and leads me to get a little more bullish.

So I have been having a major discussion with folks on the TIE Message Board on InvestorVillage about the market's future and, just like the guests on CNBC, everyone has a different opinion. One camp believes that Bank earnings will take us another leg down. I believe that the psychology of the market has turned and that much of the bad news is priced in.

So far, the bank's earnings have not shaken this market. MER in the morning is key to determining where the market goes. If MER doesn't blow up, then whatever Citi does on Friday morning will seem like a Citi problem and not anything systemic. Another big day also puts us at the upper bound of the trading range we are in.

If we can hold it together through the week, then S&P 1400 by May 1st is looking very real as I predicted months ago.