The stock market continued its rally today. The Dow Jones Industrial Average is now at all-time highs, the S&P 500 is over 2% above its May high, the NASDAQ Composite is less than 4% off of its 2006 highs, and the Russell 2000 is less than 7% off of its 2006 highs. We have said for many months that a huge rally was coming and we believe that rally has started. Currently our long-term system is far from overbought which suggests to us that this rally is just beginning.

The first chart is of the NASDAQ Composite. You can notice the trend channel that the NASDAQ has been in since the beginning of August. The index can still move higher before it hits the upper line and as the RSI indicator is still not over 70, we feel that the NASDAQ will move higher before a significant pullback. Recent highs have not pushed the RSI above 70, but we feel that this move is intended to confirm strength and will show the beginning of a much larger move. Therefore, we feel that the RSI indicator will be in overbought territory before a pullback. (Having the RSI indicator above 70 shows extreme strength). The next significant resistance levels are noted in the chart.

The next chart is of the S&P 500. Our target has been 1380-1400 for many months, but as the S&P 500 is already at 1350, we believe that the index will easily break above this target before the next sell signal. 1450-1480 is the next significant resistance area. This is our new target for this buy signal.

The last chart is of the Russell 2000, which is still far from its 2006 highs. The index still has strong resistance in the 740 area. This area needs to be broken before the Russell 2000 can begin its move to all-time highs.

With sentiment indicators being moderate to bearish and with our long-term system being far from overbought, we feel that a huge rally is just beginning.