You can see here that I underestimated the strength of this rally. However, I now see an alternate scenario that should see prices nearing a peak below 840, then head back to near 600 or so in the coming weeks.
You can see that price appears to be forming an ending diagonal since the Nov. 2008 rally. This structure makes the most sense because all of the waves in the diagonal have taken form as abc's, which is typical of the ending diagonal. I revised my wave count slightly to assume that we are finishing wave-c from 1576. Wave-c would equal Wave-a*2.618 @ 564. In addition, the diagonal trendline shows support around 625. I think the market will penetrate past this line in a final capitulation to make sentiment really bearish, thus my target of around 600. But once we reach this point, the market will begin an extremely strong rally (counter-trend moves after ending diagonals are extremely fierce). This will also finalize the MACD divergence that has been forming since the Nov. 2008 low.
What really makes me disbelieve that we've seen the bottom is the fact that investors are too bullish! Notice that the put/call ratio 10dma is at record lows. Over the past 10-days, investors have bought roughly 1.3 times as many calls as puts. That's a lot of accumulation of calls, and the market never satisfies the majority. I've been wrong about the strength of this rally short term, but I believe my analysis will be correct in the coming few weeks.
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