In May 2005 I called the peak in the homebuilder stocks. In April 2006 I warned that community and regional banks would fall like dominoes. Community banks peaked at the end 2006, and the money center and regional banks in February 2007. My mantra for the remainder of 2007 was that you can't sustain a bull market for stocks with a bear market in financials. It wasn't until October 2007 that I pounded the table with a bear market call with the Dow Jones Industrials above 14000. I warned that the next two thousand points for the Dow would be down, not up, and that a major bear market followed. When stocks were crashing going into March 2009 I predicted a V-shaped bottom between March 5 and March 9, 2009. I predicted a 40% to 50% rally, but I must admit that I did not predict the full extent of the upside. In the current stock market rally we have seen waves higher as QE3 and QE4 continued to fuel the stock market higher. While this was not unexpected, I have been warning that stocks have become too overvalued fundamentally and too overbought technically, which threatens the sustainability of the bull market.
My conclusion has been that as long as Dow Industrials stay above my semiannual pivot at 14323 the upside on the S&P 500 was to my semiannual risky level at 1566.9 and the October 2007 intraday high at 1576.09 with my semiannual risky level at 965.51 on the Russell 2000. This scenario continues as the second quarter begins, but keep in mind that there's an 85% chance that the Dow Transports will decline to my semiannual and annual pivots are 5955 and 5925 on Dow Transports. My annual value levels remain at 12696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow Transports and 809.54 on the Russell 2000. Here are the three ETF's to trade from the short side on strength to risky levels: Diamonds Trust ( DIA) ($145.32) traded to an all time high at $145.53 at quarter's end versus my semiannual pivot at $143.01. This week's risky level at $145.35 was tested on Thursday. We begin the second quarter with quarterly, monthly and weekly pivots at $137.01, 142.65 and $145.56. My annual value level is $126.69. The weekly chart profile is extremely overbought with its five-week modified moving average (MMA) at $142.04.