MEDIUM TERM: uptrend, but caution is advised This uptrend started nearly three months ago at SPX 667. The first rally was quite strong, SPX 833, and the pullback 53 points. We marked this as waves A and B. The next rally was to SPX 876 and the pullback, 49 points, overlapping the first rally. We marked this as waves 1 and 2 of wave C. Another rally pushed the SPX to 930 and the pullback was 51 points to SPX 879. Notice the symmetry in the pullbacks and this last one did not overlap the previous rally. We marked these waves as 3 and 4. This week the SPX could only rally to 925, the DOW made a new high, before a pullback to 880 (45 points). This may have been a fifth wave failure in the SPX. During this uptrend the market has rallied and the pullbacks have been spaced about three weeks apart. Now, we have two pullbacks back to back. The character of this uptrend is changing. When we count the rally to SPX 833 and pullback to 780 as waves A and B. Then count five waves up to the recent highs. We have a potentially completed ABC from the SPX 667 low. Unfortunately, the DOW technicals support this view. There's a negative RSI divergence on the daily charts at the recent high, and this market has reached its most overbought level of the entire bear market on the weekly charts. A completed ABC suggests one of two scenarios. Either Primary wave B has ended, or only Major wave A of Primary B has ended. We are going to maintain both of these counts on the SPX and DOW charts respectively. Under either scenario caution is advised at current levels. SHORT TERM Support for the SPX remains at 848 and then 789, with resistance at 912 and then 935. Short term momentum hit neutral on friday and then headed lower. Under the count posted above, when the SPX drops below 876 an overlap will occur. This will be the first sign that the ABC pattern from the SPX 667 low has completed. Should the market then break below the 848 pivot the uptrend is likely over. For the past three weeks the market has gone sideways: 883-930, 879-919 and 880-925. When this type of action occurs at a low it's considered consolidation. But at a high it's resistance. At best, a correction from here could be followed by another uptrend to complete Primary wave B at the appropriate levels. At worse, a correction from here would start Primary wave C. Since we already have over 35% in gains, whatever appropriate action one would deem defensive is suggested.
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