The rally theme of the last 3 years continues. Every reaction off of the top is taken as the next mega bear decline signal. The system gets clogged with shorts and the programs kick-in and squeeze the juice out of the bears. It was surprising as to how much bearishness was seen on the message boards over the last couple of weeks for a mere 30 point decline on the SPX. Bears arguments are getting more and more fundamental rather than technical, justifying for a big decline to come. Two arguments at this stage are the expected 4-year cyle bottom in late 2006 or early 2007 and the latest being the Yield curve inversion, a precursor to a recession.
However, the technicals tell a different story. The daily MACD is comfortably above the zero line impyling that the bullish uptrend is still intact for now. We may have seen a zero line reject on the MACD yesterday which means that the next leg up might have begun. It's a tad early to say that, but based on the size of the move and the technicals, i think the odds are that the next leg up is underway.
From a e-wave perspective, i think yesterday we finished the wave B of an expanding triangle and wave C is now underway. Until more confirmation comes, i will have to give some weight to the alternate count as well. My alternate count is that yesterday was a news induced rally (a wave X) with another A-B-C downleg yet to come. If my alternate count is true, we should find support around the SPX 1230 levels. At this stage, i will wait for a retracement and see how it plays out, before commiting to either count.
For now, the hourly trend and momentum is up and will look for day trades in that direction. The hourly is getting overbought here, so some sort of retracement/consolidation of yesterday's move is to be expected here.
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