The market has remained within the trading range since last Thursday’s update. There was one new development since then, and that’s the fact that on Friday, the decline overlapped itself in a fashion which indicates that it may have been a corrective ABC decline. This puts the odds slightly back into the bulls’ favor over the near-term, although things can get fuzzy around these types of inflection points — technically, bulls still need to reclaim 1563.62 to put a stake in the very short-term bear count.
If the S&P 500 (SPX) does clear 1563.62, then it is presently still assumed that this is wave 5 of 5, the final wave before a more prolonged correction. Note the now-striking similarity between the current market and the fractal I called attention to on March 13. I have also added a much more bullish alternate count, but this is just a foreshadowing, and I’m not paying much attention to it just yet.
The rally has now gone on so long that I had to increase the time frame on the hourly chart to accommodate the entire channel. This is characteristic of a third wave rally, and this type of strongly-trending wave is rarely seen immediately before a long-term top, which is one reason I remain bullish on the longer time frames. Usually there are several deceleration waves before a long-term top is reached (this is what I am anticipating will occur soon).
It will be interesting to see if the cash market can clear the prior high and then push into the final target zone. Note that, up to this point, three of the four target zones have generated reversals. This next target zone is expected to precede a decent-sized correction, if the alternate count is invalidated. Of course, now that I’ve mentioned this, I have all but guaranteed that the market will either fall short of that final target zone, or will slice right through it like a hot helicopter blade through a credit crisis.
The daily chart shows the market continuing to flirt with long-term resistance levels. There are some divergences beginning to show up in RSI and MACD, which is typical of fifth waves.
There is only one “small” detail that’s bothering me about the anticipation of a correction starting soon. If the rally from 1266 to 1474 was indeed a first wave, then a typical target for the third wave would be a 1.618 extension of that wave — which would put the target for this wave all the way up around 1680. Thus my caveat here is if one is inclined to take stabs at short positions along the way, I would suggest staying nimble and not getting too married to those positions. It’s always entirely possible that my preferred interpretation of a pending intermediate correction is premature.
Nevertheless, I currently remain in favor of the interpretation that the fifth wave is nearing completion. The last two waves fit the characteristics of fourth waves quite well, and that lends credence to the preferred wave count.
In conclusion, the near-term bear count remains alive until 1563.62 is reclaimed, so it’s up to the market to declare its next intentions. At the intermediate level, I still believe we are approaching a turn. Trade safe.