SPX, RUT, NYA, NDX Updates: A Major Turn Draws Near

Yesterday, it appeared reasonably likely that a little more upside would occur on Monday, and that did happen, although the market exceeded my ideal top-end range by a couple points.  What can I say: it's not an exact science. 

Going back to last week, I was expecting at least a minor turn either Friday or Monday.  As I write this, the futures are down about 7 points -- certainly not a ton, but if it holds through the open, it's at least confirmation of the minor turn I expected.  The question I can't answer with a high degree of certainty yet is if this is a major turn or minor turn.  My best guess of the very short-term counts suggest the top is in -- but as I said a minute ago, it's not an exact science. 

Fortunately, there are some levels which will invalidate each scenario, shown on the SPX chart below.  If the black waves 4 and 5 scenario plays out, my target for 4 is shown as the yellow box, and my target for 5 would be 1425-1440.  We'll have to see the form taken by any decline to help confirm or deny my current view, ideally before the invalidation levels are reached.

It is quite a bit premature for bears to jump for joy.  There are still lots of options on the table, including the possibility shown above, and the possibility that this turn will only mark the top of wave (1) of (v).  I've drawn a long term chart to illustrate how much farther the rally could run if that's the case. 

Note that I do not believe this is only wave (1) of (v) -- I think the two scenarios shown above are the most likely.  But the wave (1) of (v) potential is entrirely possible, and this rally has continually surprised to the upside, so I think it's important to be aware of the potential.

Below are two long-term charts, one showing the preferred count, and one illustrating the alternate.

Next, some supporting evidence from the RUT and NYA.  While the count appears to be roughly complete, the RUT has broken out of an inverted head and shoulders pattern which targets 876 -- so as long as it trades above the breakout level, bears should be very cautious.  It it breaks back below the blue line, that target will be suspended. 

Next the NYA, which also appears to have completed a five-wave form.

And the NDX, which also appears roughly complete.  The NDX is one of the indices causing me some doubt on the waves 4 and 5 scenario.  If the wave I'm counting as a failed fifth is actually a second wave, then there's another down/up still coming.

And finally, the devil's advocate chart, to balance things out and provide perspective.  Virtually every major index has broken out over key resistance.  If one only looked at these charts and used no other form of analysis, then one would be bullish on this market. 

However, there is one key bullish ingredient that all these charts are missing, and that's a successful back-test of the breakout levels. 

The real test will come when the market heads back toward those levels.  If the decline is bought, and the market bounces at the breakout levels, then the wave (1) of (v) scenario previously discussed may indeed be in the cards.  If the market can't hold those levels as support, then that's called a whipsaw and usually leads to a strong move in the direction of the whipsaw -- in other words, in this particular case, it would mean "look out below."

Right click on the chart and select "open in new window" to bring up the full-size chart.

In other news, Apple announced a dividend on Monday, prompting several analysts to further raise their price targets on Apple.  Several new targets are actually numbers which are so huge as to be purely theoretical, and which have previously only been applied in quantum physics.  Sometimes this type of "everything's awesome!" awesomeness breaks out near tops.  We'll see if that's the case here.

In conclusion, I do feel the bears are going to have their time in the sun very soon.  My best guess is that the top is in, though I'll allow a small margin of error regarding the waves 4 and 5 scenario previously discussed.  Obviously, there's no confirmation yet, but once a few key levels start to crack, there will probably be a lot of people heading for the exits in a hurry.  Do remember that tops usually take time, so it may still be a little while before those key levels are claimed.  Trade safe.