S&P Chart: A Sucker's Rally?

Do the bulls really have control of this market? Wasn't Tuesday's big 2% pullback after hitting a wall at S&P 1,260 just further confirmation that this is a "sucker's rally" and the path of least resistance is now lower?

I don't think so. As I wrote in "Bulls Own Rest of 2011" last week, "I think we are going to 1,300 by year end. This conclusion is based on several factors, such as the seasonally strong period for equities that is just beginning, the flow of earnings report cards that prove the economy is fine, and the very near resolution of the European "doubt" problem."

Given this backdrop, equity portfolio managers are going to put money to work in the best place in town while "cash is still trash" and the global economic cycle still looks healthy.

And for those of us with a technical bent, like me, the map of the market is still very encouraging with two main points worth noting. First, the reversal bottom off of 1,075 was not only strong, it was followed by several robust days to the upside.

Second, the back and forth digestion of gains on European worries between 1,200 and 1,220 was impressive and healthy, forming a new base of support. The market told you it was "waiting to go higher." At least that's what it said to me.

"I Buy Dips"

Because this market has the strength and bullish participation by money managers to challenge 1,260 and then the 200-day moving average at 1,275, it's not much of a stretch to reach for the next outlandish target of 1,300 before year end.

Remember, markets always fool the most people. And very few have been prepared for this rally. Many will doubt it, either sitting on the sidelines or playing the short side. This will only add fuel to the fire as these investors scramble to get in, or cover.

So, as I wrote last week when I said my bumper sticker reads "I Buy Dips", use the sell-offs on European doubt and earnings misses to buy your favorite strong stocks. On this morning's Euro-doubt dip, I profiled 3 ideas for you: Lululemon Athletica (LULU - Snapshot Report), IBM (IBM - Analyst Report), and Cummins (CMI - Analyst Report).

This should also be a good environment for gold and gold stocks too. I will take a look at some of them tomorrow, especially AngloGold Ashanti (AU - Snapshot Report) and Gold Fields (GFI - Snapshot Report).

Kevin Cook is a Senior Stock Strategist with Zacks.com

RELATED ARTICLES

3 Strong Stocks to Buy on Weakness

Amazon Options for the Big Move

WYNN Broken or a Buy?

Read the full analyst report on IBM

Read the full analyst report on CMI

Read the full analyst report on AU

Read the full analyst report on GFI

Read the full analyst report on LULU