SPX, NYMO, RUT: Market Extremely Overbought

Odds are very high that this rally is about to take a breather.  The shape of the next decline, and the price points that the next decline does (or does not) overlap, will tell us a great deal about whether or not the trend has changed to bullish at intermediate degree.  Currently, the rally still fits within the outlook for a bearish intermediate trend quite well, and I do not as yet see a reason to shift outlooks.  As always, though, the market is the final arbiter.

There are four signals suggesting that the rally is nearing a potential turning point.  The first is the 1368 target, which was nearly reached on Monday.  The second is that the McClellan Oscillator (NYMO) is now extremely over-bought.  The third is the structure of the rally counts as a complete, or nearly complete, wave form.  And the fourth is the pending face-off versus the overhead resistance level of 1370.

Since the S&P 500 (SPX) has, as yet, done nothing to invalidate the outlook suggested by the apparent five-wave decline from the recent cycle high, the odds still favor a decline to new lows after this rally turns.  And unless the market prints a new high north of 1422, the pending intermediate target in the 1100's is still active.

I suspect we are extremely close to a turn.  Below is the McClellan Oscillator (NYMO), which has reached levels that have preceded turns in the past.

Next, a chart of the RUT, which counts a bit differently than SPX.  RUT's form highly suggests that the first wave up had an extended fifth wave.  It is now approaching the level where wave c will be equal in length to wave a.

Finally, a long-term weekly chart of the SPX, just to help everyone keep things in perspective.

In conclusion, the odds heavily favor a turn lower, coming in the extremely near future -- likely as soon as the next session or two.  If the bear case still holds water, it should be a significant turn -- but we'll watch the next decline carefully to see if the outlook has changed.  And finally:  Happy 4th of July!  Trade (and drive!) safe.

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