Thus far, the decline is only three waves down (three wave structures are corrective). If it remains that way, then we will assume this was wave (4). If the decline goes on to develop an even-smaller fourth and fifth wave (see chart below), then it will begin to have the appearance of a five-wave impulsive decline. Since impulse waves generally develop in the direction of the next-larger trend, if red (4) and (5) develop, we would then assume that a larger turn was indeed underway.
The Philadelphia Bank Index (BKX) has also made downward progress, however the wave is, thus far, in a similar position to SPX.
The primary difference between SPX and BKX is that the last rally in BKX reconciles rather well as a complete structure, which would imply that a bigger turn has already begun.
In conclusion, on one hand, new highs across the board prior to a more significant turn would not be unusual. The last few tops have followed that pattern, with the first drop being a bear trap, and the recovery then being a bull trap. But by the same token, as I mentioned a couple weeks ago, if there's to be a "surprise" intermediate decline, it might not follow the usual pattern -- and it bothers me that sentiment remains outrageously bullish, and most everyone seems convinced this is just a minor correction.
From a technical standpoint, due to its cleanly-reconciling rally, BKX, at least, seems to be hinting that there's solid potential that a turn has already begun. I believe we'll have a more definitive answer soon enough. The market has reached its first minor inflection zone, and the next few sessions will thus be important to revealing more clearly where SPX stands in the intermediate picture.
Finally, on the lighter side, now that 2015 has officially inflicted itself upon us and everyone is doing "2015 market lists," here's a tongue-in-cheek look at:
13 Market-Related Surprises Coming for 2015
1. In January, at the culmination of a long undercover investigation, "Janet Yellen" will be exposed as actually being three elderly Canadian men, dressed in what the FBI will call "a very clever disguise."* She/they will be forced to step down as Fed Chairpeople. The U.S. markets will tumble.
2. In an emergency move in February, Ben Bernanke will be reinstated as Fed Chairman. He will immediately require that QE be continued "until the United States lands a manned spaceship on the sun." When asked about this unusual demand, Bernanke will state: "I'm not an unreasonable man. I fully expect that NASA will perform the landing mission at night." The U.S. markets will instantly recover to new highs.
3. In related news, during an important speech in March, Mario Draghi will accidentally swallow his own head on international television.
4. The ECB will collapse. In April, Japan will purchase the ECB for pennies on the Euro. Their new currency will officially be named the Yenro -- but smart-aleck analysts will insist on calling it "the Euren."**
5. Japan's Nikkei will initially soar, then collapse dramatically. In June, Ben Bernanke will purchase Japan. He will rename it "Bernankeland."
6. Bernankeland will be annexed as prime coastal real estate, and late night American infomercials will advertise how to "Get Rich Quick Flipping Homes in Bernankeland."
7. By August, a new, Bernankeland-driven real estate bubble will have emerged in the U.S.. This latest bubble will finally stimulate the U.S. economy, and create the long-awaited economic "recovery."
8. In September, the remainder of the ECB (now owned by the U.S. via former-Japan) will be sold for parts.
9. Germany will initially try to purchase the ECB shares of France, Austria, Belgium, The Netherlands, and most other countries -- but this move will be ultimately be blocked by the U.S. (with some help from Russia). Having again saved the day, the U.S. will sell ECB shares back to their original constituent countries for a profit.
10. By November, having finally achieved his lifelong ambition of True World Domination, Ben Bernanke will declare himself as Super-duper King of the Earth. Billions (of people, not newly minted currency) will cheer in admiration.
11. In December, King Bernanke will require that, henceforth, all citizens shall address him only as "Mr. Super-Duper Fed King Chairman, sir." His first official decree will be that eight random Wednesdays in each year shall be designated as worldwide holidays. On those holidays, under penalty of treason, TV broadcasts will be limited to showing ONLY reruns of old Bernanke speeches (however, commercial interruptions will be allowed, in the name of stimulating consumerism).
12. Everyone will live happily ever after.
13. I mean, right? No matter how we get there, that's how all this ends, right? Everything that's going on now can ONLY end well. Right? RIGHT?!?!?
*Credit to Dave Barry for the concept of three men masquerading as one woman
**Credit to board member Benedict Arnold for "the Euren"
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