The market has bottomed, I believe, for 2008.  However, we are still in a bear market until proven otherwise.  And given the difficulties the economy is still facing, I am skeptical that the ultimate bottom has been put in place. 

I am working from the thesis that after a substantial bear market rally, stocks roll over again next year and re-test the lows.  I may be wrong and remain open-minded to the possibility that the market has ultimately bottomed and there will be no re-test.  However, I am working from the thesis that we have at least one more scary downdraft to go.

Thus, it is prudent to scale back trading longs.  I see at least five levels of resistance which could be used as sale points.

920 – The top end range of the downward sloping channel is 920.  We hit 917 today.  For all intents and purposes, we hit the top end of the channel this afternoon.

935 – The 50-day moving average is 935.

1025 – The peak of the most recent bounce was 1313 on August 11.  A 50% retracement off the low set on November 21 of 741 would put the S&P 500 at 1025.

1040 – Rallies of 40% or more are common during bear markets.  For example, the Nasdaq rallied 44% and 52% during its 78% market decline during 2000-02.  A 40% rally off the bottom would put the S&P 500 at 1040.

1160 – An interesting level of resistance is the 200-day moving average, which is currently at 1220. Given the onset of time, it will be lower in the new year.  A 50% retracement from the ultimate top on October 10, 2007 to the low on November 21 would put the S&P 500 at 1160, just about where the 200-day moving average will be within the next few months. 

I am expecting a move to the 1025-1040 level.  At that point, I expect a sell-off.  However, I remain open-minded that today may have been the peak, that the market may hit 1160 next year, or that the market may have already been bottomed and we are at the beginning of a new bull market.

I will let the data and the market action talk to me.  I will also continue to accumulate stocks which I think are Stupid Value, or that the valuation is so stupid, I have to buy, regardless of the market environment.  I will hedge Stupid Value stocks if I think the market is rolling over.