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Is the Rally Nearing a Peak?


While a trip to new highs would be the "perfect world" path, a larger correction could begin at any time.

Yesterday's preferred wave count outlined a small fourth wave correction as the most likely outcome for the session, and the market performed very much in line with that expectation. Odds are reasonably good that there's still a small degree fifth wave-up left to come, ideally peaking into my 1520-1530 target zone -- however, we're now within the margin of error for that wave count.

On the chart below, note that the market may have completed all of red wave (iv), but fourth waves are notoriously ugly and unpredictable, and quite frankly, I hate trading them. In a perfect world, red wave (iv) is roughly complete as a simple ABC and would move more or less directly into wave (v) to complete blue 3, but there are no guarantees of this and there's no rule that says this fourth wave can't chop around for another session or five.

Blue wave 3 is expected to be followed by blue wave 4 (I know: duh) -- in other words, a high degree fourth wave, which could chop around in a sideways/down manner for several weeks.

Click to enlarge

The 3-minute S&P 500 (INDEXSP:.INX) chart contains additional detail:

Click to enlarge
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No positions in stocks mentioned.
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