The bears finally showed a little bit of strength yesterday, although the decline was almost entirely retraced by day’s end. Before I get to the short-term bear counts, I’m going to present the slightly more bullish alternate, then wrap up the discussion with the bear view.
The recent decline is currently a three-wave form, and played out almost perfectly for the alternate count — this is causing me to again present the alternate count’s chart (not published yesterday; chart last published in Friday’s article). It was brought to my attention that the very short term count I showed yesterday with the black “Alt.: A” and “Alt: B” labels wasn’t understood by many readers. Those labels represented the blue a and b labels on the chart below.
There’s an interesting potential at play across markets right now. Last Thursday, the Dow Jones Industrial Average (INDU) came within 35 points of invalidating its entire Minor Wave (2) count. The current structure on the INDU appears slightly different than the SPX. While the SPX looks like a 3-wave decline, the INDU may have formed a five-wave decline. The INDU also pierced intermediate support, though rallied back above it. Is it possible that the INDU has topped, while the SPX could still make another run, slightly above the 1333 high? Today’s action should help answer this question.
Below is the INDU chart, which mainly focusses on the support and resistance lines. For the first time since the rally began, INDU pierced the rising blue trendline connecting the November and December bottoms. It still maintained the red channel, but each decline has been getting progressively stronger, as each time the channel line is forced lower. I expect the next decline will finally break the rally’s back for good. In the meantime, until there is a solid close beneath the blue trendline, there is still no confirmation of trend change.