Last week, based on our analysis of the cyclical behavior of market internals, we cautioned against keeping a bearish stance. On Monday, the tide shifted and now the pendulum has swung the other way:

The SPX's rebound propelled the index up 45+ points, in line with the average swing size for the last six months:

This fulfilled our expectation from a month ago, that the index will reach the all time high. This raises again the question of whether the SPX will continue advancing within the confines of the QE III channel, or whether it will kick into higher gear, and aim for the top of the '09 channel.

Based on our market breadth analysis, the expectation is that overbought conditions will be reached within a day or two, which argues for a consolidation of the recent up move.

In the meantime, the state of the daily, weekly and monthly trend for the DJIA, SPX and QQQ is up.