Tomorrow and the Next
Tuesday, the S&P staged an impressive rally, moving higher by 36 points to 1285. The next upside target for the S&P is the descending 50 moving average, which currently sits around 1304. In order to reach that level, the index will need to push through the 1291 double-top. Financials may continue to lead the market in the short-term, as the XLF pushed above its 50 moving average and closed above the 22.50 resistance level. The KRE, which is an ETF that tracks regional banks, also looks poised for more gains in the near-term.

Over the Next Week or Two
The rally beginning July 15 off 1200 remains well intact. Over the next couple weeks, there are two scenarios to consider. Either a counter-trend rally towards 1365 is underway, OR the rally beginning July 15 will run out of gas and dive lower to shakeout the bottom callers. StockTock favors the latter, given the unimpressive volume of this current rally. Also, it is difficult to imagine financials holding up for any meaningful period of time.

After That
The S&P is in a bear market, and all rallies must be viewed as counter-trend moves. The length and depth of this bear market depends on developments in the credit markets. The financials and housing sectors are not out of the woods. Also, higher energy prices threaten to add insult to injury. A 50% retracement from the Oct 2002 low to the Oct 2007 peak is 1172.36. This level probably needs to be pierced before any rally can slay the bull.

The Market Outlook is updated as the charts fill out and provide more clarity.