SPX and COMPQ: Giving the Bears Some Airtime

On Wednesday, I noted that the wave structure suggested the market was due for a correction toward a first target of SPX 1984-90, the upper edge of which was reached on Thursday.  We discussed two possible wave counts -- a small fourth wave vs. a larger extended fifth wave retrace.  Both counts remain viable.

I generally don't like top calling in bull markets unless I have really clear signals, like we did last month -- but as of what's in the charts right now, it's very tempting to call an impending top here.

Let's start with the SPX 15-minute chart.  It certainly appears that, at best, SPX is embarking on a fifth wave rally, so we may see a new all-time-high before a larger correction begins.  But even that isn't a given, as the extended fifth wave count discussed on Wednesday remains viable.  On Wednesday, I detailed that the extended fifth retrace would be expected to decline to 1984-90, then bounce back to retest the all-time-high before declining again (into the 1940's or beyond).  That retest could even take the form of a marginal new high, in the event of the b-wave of an expanded flat.

The more bullish count isn't shown here, but would be that the wave labeled as green 5 only marks wave i of 5 -- that option would stretch wave 5 into a larger rally.  I'm handicapping that option at the moment, so will discuss it in more detail in a future update as and if it becomes appropriate.

The blue up-sloping channel on the chart below represents the first warning zone for bulls.

The SPX 2-hour chart adds additional perspective.

The NasDUCK also has enough waves in place for a complete rally:

In conclusion, bulls still have the long-term trend in their favor, but signs are suggesting that an intermediate trend reversal may be drawing near.  Given what's in the charts as of today, anyway, it appears that upside reward is becoming overshadowed by downside risk.  Of course, the market always reserves the right to do something unexpected and morph all this into a more bullish wave structure, and I'm never closed to that sort of option and won't fight it if it happens -- but if that were to happen, we should be able to catch up with it fairly quickly, and adjust on-the-fly in real-time.  Trade safe.