Yesterday, I spoke about the possibility that Minor Wave (2) up could complete its top within hours, and it’s entirely conceivable that came to pass yesterday. Once again, the market gapped up, and once again, the bulls took it nowhere after the futures gap. Back in December, I dubbed this the Buyerless Rally due to the fact that the majority of the rally has taken place in the overnight futures market, with very little movement coming in the cash market. That continues to hold true, and I still believe this is a sign of distribution.
The Minor (2) top could have completed yesterday, however, the very short-term wave structure also allows for the possibility of one small thrust higher, so we’ll see what happens in the next couple sessions. 1300-1310 remains as the next level for this market to beat. Given the extreme bullish sentiment, and the fact that indicators such as RSI and MACD have been losing momentum and diverging bearishly for some time now, it’s difficult to imagine the market will find the steam to push through right now.
It bears repeating that Elliott Wave patterns are created by mass psychology. When the majority are in one camp (i.e.- bulls), it’s time to start betting the other way. All the talk of a new bull market, and the recent laws passed in several states which now make it legal to hold public stonings of bearish investors, are both fully consistent with a major second wave top.
Several key long term resistance levels are now lurking just overhead. The market has already broken out over a few important levels, but still has a lot of work to do before I consider turning long-term bullish. The first chart is a daily look at the S&P 500 (SPX), and shows some significant overhead resistance in the 1300-1310 zone. If the market can somehow break through that zone, it would open up the 1330-1350 area as a possible target. My expectation, however, is that it will not break through this zone.
The next chart is the Nasdaq Composite (COMP), and shows it’s in a similar position as the SPX, with key resistance just overhead.
The next chart is my preferred short term wave count, which shows the rally may have ended yesterday. The one-minute chart suggests the possibility that yesterday’s spike high may have only been the internal third wave of wave c of v of C of (y) of Minor (2). If that’s the case, then there’s one more ever-so-slightly higher high coming before it rolls over for real. But it’s not required, and the market could very well roll over immediately.
A break of 1283.05 would take that very short-term option off the table — however it would not rule out the alternate count shown in the chart which follows this. A break of the first wave a high at 1242.82 should serve as final confirmation that this wave up is complete.
The next chart is the alternate interpretation of the wave structure (not the interpretation I’m favoring, in other words), and suggests that 1310 +/- might be the final target for the rally.
I want to follow that chart immediately with an interesting analog from 2001-2002. What I find most interesting in the following chart is the fractal comparison between the first leg of its rally and the first leg of the current rally (from the October lows). The structures look almost identical. You can also see that in 2002, the market lolly-gagged around near that first high for several months (much like the current market) before finally rolling over and dropping 35%.
Another chart I wanted to share was the put/call ratio, which has reached extreme levels that are generally consistent with tops… however, Stockcharts has gremlins which randomly delete my charts (this is the third one that’s gone missing without a trace; the Stockcharts server is apparently located in the Bermuda Triangle), and I simply don’t have time to recreate it tonight.
The last chart’s the Dow, labeled with the preferred ending diagonal count.
In conclusion, I remain long-term bearish on this market, and unless the market can break overhead resistance, I am now short and medium term bearish as well. Based on the wave structure, I believe something is “destined” to occur in the very near future to wake investors up from Bullish Happy Fun Land, and this wake-up call will rapidly turn sentiment from bullish to bearish. When that happens, there will be a fast stampede for the exits. Trade safe.