I took a few days away from writing just to observe the markets without feeling obligated to comment on each little wiggle. It's been an interesting few days.

Let me say that Tim and I recorded an interview Friday and then abruptly lost the file. If you were looking for it I apologize.  We're still not sure what happened to it. 

The 1060 level has been defeated along with the September highs. The 1120 level, the 50% retracement off of the March lows lay dead ahead. Money is coming back into the market that has been hesitant up to this point.

The range right here is pretty defined. If the market breaks above 1120, it will probably move higher. If it sells off from 1120, watch the 1055 area on a monthly close. This is the middle of the bollinger band range on a monthly S&P chart. It's been crossed and closed beyond on a monthly basis only 5 times since 1995.  In each instance the market continued on in the direction of the crossover for quite a while. In this case that would be up. So, if the market sells off  but closes the month above that bollinger band level, I would be have to take that as bullish. If it closed below, it could be bearish.

Another thing I've been watching is the correlation of the S&P with the Shanghai Index ($SSEC). If you'll take a daily Shanghai chart, find the late October, early November 2008 low, then slide it ahead 4 months or so to match the March 09 S&P low, you'll notice the similarities pretty quickly. It's uncanny. Even the move today was almost exactly what the Shanghai did in this same spot.

If this correlation holds up, it would indicate a much higher S&P top in mid December before trouble sets in. That actually almost makes sense with all of the momentum money coming in. A blow off top could easily develop here before profit taking in December ends it all. Perhaps with a move back to the 200 day m.a. initially.

Go look at those charts.

That's a very  short term bullish thing I just said. That's fine. If the market wants to go higher who am I to argue with it. But I am very nervous about it. "Dumb money" is coming back in droves. I offer the following as an example:

I had a UPS delivery man come to my office today to make a delivery. He said business was still very slow and then told me he was about to move his 401k back into the markets. He said he'd moved out about a year ago after losing a good bit of money, but felt it was safe to go back in. Do I hear a bell ringing?

That doesn't mean a top is in. What it does mean to me is that the markets will retreat at some point to lower levels than they are at now. Why is that? Because the market isn't going to let this guy make money. It may carry him up for a while and get him excited, but it will take away everything it gives him and then some before he cries uncle for the last time, never to return.

That's just the way the game is played. I hope he keeps his day job.