Before getting into today’s forecast, I want to let everyone know that yesterday’s upside price spike should be viewed as a “shot across the bow” with respect to the coming mini melt-up the model is forecasting.  I did warn you all about a “sharp bounce” (and forecast that in yesterday morning’s update) but I didn’t expect it to be quite so violent. 

Remember though, the low, once it comes (I think we’ll see it either Sunday in the futures mkt. or next Tuesday during the day session) should be a “V” bottom just like the one we saw yesterday.

This implies that if you’re bullish certain individual stocks–and won’t lose sleep if they move against you a bit–you should be buying those select names on weakness today and the first session of next week because, according to my model, this set up will be very forgiving in that even if you buy at a terrible price today and Tuesday, they should be right back at your buy level or above within 2-3 sessions.  (This of course assumes you’ll be buying market performers that move with the averages)

Here’s what I’m watching-

There are certain thresholds in my work that are coincident with buy and sell programs and high-emotion, high-velocity moves, and the market’s current set-up finds it sitting directly on top of just such a set-up. (Call it the ultimate cruel whip-saw set up)

What’s interesting about this set-up is that the news backdrop is such that the talking heads are all guessing whether or not the news from our gov. is likely to elicit a positive or negative response once “the news” becomes more clear (i.e. details are released.)

The BAM model says just the opposite.  The BAM model says that the emotional backdrop of participants is what determines market direction because it is that emotional backdrop or “mood” that determines the reaction to the news regardless of the actual news.  This, I believe, is the reason you often see counter-intuitive reactions to crude oil inventories reports, earnings reports, etc. etc. and this is also a part of the theory behind the “buy the rumor, sell the news” or “sell the rumor”, “buy the news” dynamic.

Anyway, the BAM model–after being more negative than any other forecaster I know of over the past two years–is warning me that market participants are ready to move from an emotional backdrop of severe pessimism to an emotional backdrop of optimism and as they do that the market should rally regardless of–and even despite–the “news.”

Full report coming soon