Monday, June 4, 2012

S&P 500 ~ Big Picture ~ 4 June 2012

In my last update I assumed that we're in a fourth wave correction which could go as low as 1290. The direction was correct but I underestimated the strength of this correction because we closed below 1290 last week.

Friday's close below 1290 was the doom for most bullish counts (wave 1 - wave 4 overlap).

The SPX and also the Nasdaq display five waves down from the top indicating that what we've seen so far is just a part of a bigger correction:

The target area for wave [v] is 1250-70 (SPX). After that we should get a correction to 1300-1340.

Long-term is a bit of a mess. There are many possible counts but none of them looks very good to be honest.

Nevertheless, I'll show you the two counts I like most:

Bearish for 2012 but bullish for 2013:

So far nothing is lost for the bulls. As you can see the SPX still makes higher lows and higher highs and I think as long as this persists one should have a bullish bias long-term. We actually got a similar situation during the last bull market (see above chart) so we probably get the same again this time.

Wave (A) should end between 1250 and 1270. Wave (B) to 1300-40 and then wave (C) to ~1150 should complete wave [X]. After that wave [Z] should follow and hit new highs next year. Then we should enter a new bear market and hit new lows below 666.

Bearish for the next few years:
This count will be my preferred one if the market declines below 1075:

I think the chart is self-explanatory: down to new lows to below 666.

As you can see both counts are very similar short- and medium-term: Decline to 1250-70, rally to 1300-40, and then a decline to below 1200. A close above 1340 would make these two scenarios unlikely, a close above 1360 would invalidate them.

To sum up, I think that the long-term count is very unclear. We could be at the start of a new bear market or only in a correction on the way to new all-time highs. Short-term we should complete five waves soon (1250-70) and then get a bounce to 1300-40.