Is this Rally at its Peak?

If you have read my blog you would know that I expect the market to collapse in the near future. I have to admit that I didn't expect the market to rally back to these current levels and because it has, it makes it a little more difficult to know exactly when this market will sell off. It can be argued that this market is overbought, it is over extended and fundamentals are bad. Even so, markets have moved higher under similar conditions in the past. So how do we decide where this market goes next? We really can't. What we can do though is take a look at some charts and see how many arguments we can amass that support a market decline versus a continuation of bullishness. Whichever side accumulates the most arguments in its favor will determine what my position is heading into the coming week.

Take a look at the following chart, these Fibonacci calculations suggest that we should see a downturn heading into the coming week.

This S&P Futures Chart shows a Fibonacci speed and resistance fan calculated from the 7/13/09 low pivot to the 10/20/09 high pivot. As you can see it creates trend lines that match up exactly with the markets up trend to the January  2010 highs right on down to the February lows. If the markets continue to trade with this pattern, it suggests a potential reversal off the current levels. If the market is to head back down toward the 61.8% retracement trend, we could hypothesize that the ES will head toward the $1086 price level in the next week or two. However, if we get a close on the daily chart above the 50% trend line, that would be a sign against a move back down. At that point it should be fairly certain that we head toward a double top and potentially higher.

Below you can see a 60 minute chart of the S&P Futures that shows the current up trend channel we have been trading in. As you can see below, we are approaching the top trend line of this channel.

The top of the channel happens to line up with the double top from the January highs. That might be a short term target long and then when we reach the $1147 area, that could be a good place for a short.