Index futures have come slithering out of the gate Sunday night, so quiet and subdued that one could almost forget last week ended with bears caught for a third straight day in a vicious short-squeeze. They had better not make the mistake of underestimating this rally, since short-covering has a tendency to feed on itself until the last bold doubter has been dazed, dismembered and liquidated. How high could the futures go? My minimum expectation is 1939.50, a 43-point thrust from these levels that would equate to a 50% retracement of the New Year’s selloff. Any higher and I’d infer bears have trapped themselves into a buying binge that could hit 1971.50 — a precise 0.618 correction of January’s plunge. For trading purposes, I’ll suggest using a pullback from just above last Tuesday’s 1907.50 peak to get long — a camouflage trade that will work best if the breakout has exceeded 1907.50 by no more than 3-4 ticks. Alternatively, the first sign that bears have the upper hand would come on an 1881.50 print. I see this as unlikely on Monday unless disturbing news hits the tape.
