SPX Update

SPX may be near completing a 2-year uptrend. I remain bearish, especially as the market nears the 1250-1300 zone.


Notice in the daily chart above that the market made a strong 5-wave move from Oct 2007 to Mar 2009. Following this, we’ve seen an equally impressive 21-month rally that has taken SPX from 666 to 1245, an 86% rally. However, this rally appears to have subdivided into zig-zag 5-3-5 formation, and it is nearing strong trendline resistance.

Note that Wave-C is relatively muted compared to Wave-A. This makes sense to me given the fact that the looming trendlines are providing good selling pressure. Also, given the strength of Wave-A, one would expect Wave-C to be slightly more modest.


The daily chart above shows Wave-C of the rally from the Mar 2009 low. Notice that it unfolded in in a clear 5-wave pattern. Each corrective wave lasted about 3-4 weeks, similar to the corrective waves in Wave-A. The fifth wave coupled with MACD divergence tells me that the market is about to turn over.

I have been proven wrong so many times over the past 21 months. At this point, I see no reason for the market to form a major top near this level, but on the other hand, this kind of sentiment seems prevalent right now. The top occurs when no one is expecting it as a possibility.

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