I've been watching CNBC more than I normally do. At important times like this I use it to get a feel for the psychology in the market. What I saw yesterday was more skepticism of the rally. Almost everyone on there was expecting some sort of retest. I don't see a retest coming in this rally. We actually already had a retest on Wednesday, but the reason I think it unlikely is that bear market rallies usually have a different character to them than bull market rallies.

During bear markets the bottoms create deeper technical analysis oversold conditions than they do in bull markets. There also is a lot more shorting during the declines and much much more short covering during the rallies. A market that is more oversold and then has a rally in which a lot of the fuel comes from short covering is going to rally quickly and sharply with barely a pullback until it totally exhausts itself. Once that happens we'll get a "retest" if you want to call it that. What it will really be is another downtrend.

I suspect most people still have the market action of the past few years in their mind. To get a better feel for how this rally is likely to unfold it is best to look back to the bear market of 2000-2002.

The 2000-2002 bear market had three major declines and bottoms. I expect to see at least two major declines in this bear market, with a third decline being likely, although it could be a successful retest to start the bottoming process. Right now it is best to compare this market bottom to the first two major bottoms during the 2000-2002 bear market and take a look at how the market rallied afterwards to get an idea of how this rally is likely to unfold.

Leading into the April 2001 bottom the market had fallen 8 months much like it has fallen right now, although at a slower rate then. The breakdown in September 2000 was the start of the full blown bear market, although the market had topped in the spring of 2000. I think this move down is most similar to that one if you want to compare this bear market drop to the drops of the last one. Both of these legs down marked the beginning of the slope down of the long-term 200 and 150 day moving averages, which as I discussed in detail in December is the textbook signature start of a bear market. You can see in the first chart how these moving averages acted as long-term resistance during the last bear market and is likely to do so again.

It appears that the market did make a double bottom in this April 2001 bear market, however, it did not when using technical and sentiment indicators. The Investors Intelligence survey gave a contrarian buy signal on the very day the market bottomed and so did the VIX and put/call ratio. I remember this clearly, because I actually bought that day.

After that bottom the market rallied back up to the 150-day moving average with barely a pullback. The first move up was fast and furious and lasted for almost four full weeks. Three days after the market bottom the market did pause for a few days before going higher, but that was the only point you got near the lows. Something similar could happen now right before or after Tuesday FOMC meeting.

One thing that is different now than during the April 2001 bottom is this time the market actually came close to crashing and was much more oversold. In that sense this bottom is more comparable to the bottom that came after the September 11th terrorist attacks. As you can see after that bottom the market rallied straight back up to its 150 and 200-day moving averages.

Such a rally now would take the S&P 500 up to the 1470-1480 area. If the market rallies that high it will spend several weeks building a top before it begins another leg down. I have heard no one, except Andy, state that the market could rally this high. Most have targets of 1400. Frank Barbera has a target of 1450. My own personal target, at which I plan to start to sell my positions is 1450. I'm going to move my stops up and if we get to 1450 start selling. At 1450 I'll likely sell my positions associated with the broad market and hold my mining positions for a few more weeks as I think they'll have more juice to them.

If the market rallies in a similar fashion to the bear market rallies of 2001 I would expect it to continue higher with hardly a pullback. We may get a 2-3 day pause here or after the FOMC meeting, but that will be the only really good entry point. After that I expect the market to rally up to the 1400 area, pause for a week, and then move up to 1450 where it will either top or churn a bit for one more exhaustion move up to the 1460-1480 area. It should make its peak at the end of February or in March. It will then likely churn sideways for a few weeks and start to decline again in April. We need to watch the stock picks carefully.

From yesterday's Florida Republican debate: