Taking a look at the (market leading) small caps (IWM), its pretty clear that something violent has just happened. Stocks were in the midst of a healthy correction (pennant pattern) and finding support at the rising 200 dma in late October. After a shaky bounce IWM got slammed through its 200 dma but ultimately reversed in a V-bottom-like pattern retaking its 200 dma. Recently the CCI and stochastics have given buy signals and now that IWM has regained its 50 dma I see nothing but pain ahead for shorts in the coming weeks:
While most people point to the poor performance of former market leaders (like AAPL and GOOG) new leaders are emerging. Take a look at FB over the past few weeks, the rally is relentless and on strong volume. The ~3.5 month base is really paying off now:
Whether they are new leaders or just heavily shorted stocks getting squeezed (shorts fear higher taxes in 2013), 100%+ gains in popular stocks like FSLR, GMCR, and RIMM over the past six months makes for some very positive sentiment. FSLR seems to be just getting started after breaking $26 last week. It should see ~$32 by Christmas:
Shorts seem to be panicking on GMCR as it has soared 100% on huge volume spikes:
RIMM, the stock that everybody loves to hate, bulls sure aren't hating it right now. Volume has been through the roof as RIMM surged above its 200 dma (declining):
The point is, despite all the negative press lately about the "fiscal cliff" stocks have rebounded very strongly from the November lows and appear to be starting a new leg up. While many stocks have struggled lately, others have been exploding higher (see above). I'd be surprised if we don't see a continuation of the recent rally to new 52 week highs on the indexes by the end of the year. Happy holidays to all!
Disclosure: I am long IWM calls and FSLR stock.
PS. I see all solar rallying strongly here (I am long TAN, SPWR, JASO, ASTI, ENPH, MCP also)
