A short post tonight as the twins are being particularly demainding!

The Percent Bullish / Percent Bearish indicators have been incredibly accurate in timing market reversals. Take a look at the image below.

Notice how the Percentage Bears indicator bottomed around August 2007, 2 months before the all time high was put in and the market collapsed. Fast forward to October 2008, the Percentage Bears indicator peaks, 2 months before the huge 2009 official kicked off.Fast forward even further to January, 2010. The indicator is at all time lows; does this mean an impending market crash is in order?

Perhaps not, although there are clear signs of an imminent correction. Corey at AfradToTrade.com did an article about how market internals predicted the sell off on December 31st. I think this market is still far overdue for a correction. Whether or not that runs into full fledged bear hysteria remains to be seen.

There are plenty of bearish signals to back up my theory, although corrections in 2009 were few, an short lived. I think with bullish sentiment becoming over extended, it is only a matter of time before the bears have a few days in the sun. Let’s take a look at some key levels.

Basic fibonacci retracements point to 1020 and 953 as S1 and S2. I prefer to use weekly charts when utilizing fibonacci to forecast support and resistance levels on the S&P as well as other indicies. You can clearly see that price action supports these forecasts. For this week, I would be watching the 1100 and then the 1090 level. If 1100 breaks, price should move quickly down to 1090, and this would signal a move down to 1020 should be in the cards.

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