Back in December, I made an appearance on CNBC (see video below) and said that I thought 2009 would be a great year for the market.  I was being interviewed by Maria Bartiromo.  In the studio, you can’t see the expression of the person interviewing you, it is just you, a camera and a cameraman.  Shortly after I walked out of the studio, my phone started ringing and it was my colleague Jon Herring.  He told me that the expression on Maria’s face was priceless when I said I was bullish on the market.  Apparently Maria thought I was crazy.

Well, so far this year the S&P and Nasdaq are both in positive territory, the S&P by a little and the Nasdaq by 10 percent.  It has been a strange path to get to this positive territory with a huge drop in January and February and then a monstrous rally since then.

In fact, the rally appears to be overdone.  We have jumped too much, too fast.  Looking at the chart of the S&P 500, the daily stochastics have reached their highest level in two years thanks to this rally.

A closer look shows three significant hurdles for the S&P to overcome in the immediate future:

• The 200-day moving average is in the 958 range
• The downward-sloped trendline is sitting just above the 200-day
• The high from January- 943.85

Combining the three levels of resistance and the overbought state (both on the daily chart and the weekly chart), there is little chance of the S&P breaking through the resistance in the immediate future.

While I still think 2009 will be a positive year, a decent pullback will be healthy for the market.  The monthly chart shows that we are barely out of oversold territory.  We are still 100 points below the 12-month moving average that I have talked about using to time your asset allocations.

If you are a short-term trader and have reaped the benefits of this massive rally, I suggest you take some money off the table.  If you are a long-term investor, I suggest you wait before committing any additional funds to equities.

A move back down to the 800 level and some sideways movement for a month or two would give the 12-month moving average time to catch up and then we could potentially see the 6-month moving average cross back above the 12-month.  And that is when you will know for certain that the bear market is over.

Good luck and good trading,

Rick