Last update was a bit tongue-in-cheek regarding my anecdotal sentiment readings, and my personal opinion that there was currently too much bullishness prevalent. I also noted that I felt the top was closer than the bottom for equities, and that wave (5) appeared to be complete or nearly so. I outlined the zones where I felt that thesis would be challenged; bulls were unable to reclaim the key zones.
On Friday, the S&P 500
(INDEXSP:.INX) made a final thrust upward, which fell about two points shy of "Target 2" for the bull count (as noted 2/14 on the daily chart -- at the time it was noted, it was contingent on 1850 being reclaimed) and also fell shy of the bull/bear divider noted on the chart. This now appears to be a complete five-wave rally at multiple degrees of trend, which suggests a meaningful correction is underway. Granted, one reversal day does not a decline make (though it's a good start) -- so the first important support zone for bears to reclaim is the 1839-40 area.
The count not shown (an ending diagonal) was noted on 2/26 -- that option remains possible (if less likely) and would lead to one last-gasp bull thrust higher. If bears reclaim 1839, that option becomes an even lower probability.
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Bigger picture, there are now five waves up at multiple degrees of trend. This is one precursor to a larger correction.
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The Dow Jones Transportation Average
(INDEXDJX:DJT) is one of the markets that's kept me looking for a top in SPX recently, and the bear count remains alive and well in TRAN. The levels that bears (and bulls) need to reclaim also remain clear and are noted on the chart.
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In conclusion, this is an excellent opportunity for bears to take control of the market and force a larger turn. All the ingredients are in place -- now it's simply up to the market to either make it happen or to find a way to disappoint the bears yet again. Next I'll be watching whether the decline takes the shape of an ABC or a larger five-wave structure to add confidence to a larger trend change (and then we'll all keep our fingers crossed that it's not yet another
expanded flat c-wave -- a favorite poison of this bull market). Trade safe.
Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter: @PretzelLogic.
No positions in stocks mentioned.
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