The last time I felt the charts were this challenging was on September 29, 2011.  That was the market getting geared up to reverse and turn into the October rally.  I ended up nailing the turn to the day, but a few days before it happened, the charts got really messy.  The market often gets most confusing near major turns as it tries to grind everyone up, and right now it feels like the market just doesn't want anyone to know exactly what's coming next.  Many of the other technical analysts I periodically check in on seem to be expressing similar angst -- at least the ones who don't just shoot for the easy answers.

Yesterday was another one of those "do nothing" days that doesn't aid much in analysis.  The possibilities put forth on Wednesday and reiterated yesterday still stand.  The top may be in, or another lunge higher may be in the cards.  Let's start with the preferred count, and then I'd like to share a couple alternates.  The first chart is the preferred ending diagonal count, and suggests that one more lunge higher may be needed to complete the rally -- though it's not required. Now let's discuss some alternate possibilities.  I uncovered a potential in the Philadelphia Bank Index (BKX) which will probably not thrill bears -- there is still the potential of a bit more melt-up from these levels.  Here's the BKX chart, so you can see what I'm referring to; I'll discuss this further beneath the chart. The blue count agrees with the ending diagonal preferred count; the black count does not. The chart annotations explain some of the positives each count has going for it, however there is one additional mention that the black count has in its favor: the target of roughly 45 equates to both the Fibonnacci 1.618 extension of wave a, and the target given by the equation where wave 5 becomes equal in length to wave 1.  When two forms of targeting both agree on the same number, it calls for caution.

That said, the issue I have with the black count is discussed on the chart: momentum should have increased during the third wave, not decreased.  So I am somewhat torn, and unable to give an edge to one count or the other at this moment.  Hopefully Friday and/or Monday's action will help.

The next chart shows how the S&P 500 (SPX) could track the BKX if the "more melt-up" scenario unfolds.  The other thought regarding this scenario is that a move like this could break the last of the bears into capitulating.  Surprisingly, despite the AAII sentiment numbers of 17% bears, there are still a reasonable number of us who haven't yet been shot or had to gnaw off our paws to escape traps.  A final push that sustains trade over 1300 for a few days would probably get most of the remaining bears to cover their shorts. I like to say those are the levels where the big players sell their shorts -- which are then bought by all the retail bears who are covering theirs.

Anyway, this SPX chart shows how to count this potential in line with the information revealed on the BKX chart.  The blue 5th wave would target the 1310-1330 zone under this count.  Again, hopefully the next couple sessions will reveal if these alternate counts have any legs. The ongoing observation I have is that the SPX has not performed at all in line with expectations for a "normal" c-wave rally.  The third wave in particular was weak thus far, and had a very deep fourth wave retracement.  This suggests several possibilities, such as those discussed, but we're still left with unanswered questions.

There are now many divergences beginning to crop up on the indices and on individual stocks, and this too suggests that the rally is not much longer for this world.  The patterns being formed are suggestive of a distribution top.  I remain of the belief that this is the last rally before an extended decline -- but the market isn't making it easy on technical analysts to pinpoint the top.  I'm sticking to my call for a reversal in the 1269-1310 zone.  In a perfect world, today's market would run higher to complete the ending diagonal in the 1292-1310 zone, then reverse and call it a day.  Keep in mind that non-farm payroll days often line up with major reversals.  Trade safe.
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