Markets Showing Unconfirmed Intermediate Top

In the last letter, I mentioned that I had a P&F projection to 2400 and that, after a correction, there was a possibility that it could be followed by a push a little higher to about 2410. So far, so good. Reaching the target brought a forty-five-point retracement but, because it found support just above the main trend line, we still do not have confirmation that we have started a correction of intermediate proportion. Until we break that trend line, an extension of the rally from 2084 to a higher high could still be ahead. However, the intermediate cycle lows which are due between April and May are just around the corner and are increasing their downward pressure on prices every day. This should soon cause another reversal and a continuation of the downtrend.   

On Friday, assisted by a good jobs report, the rally which started the previous day retraced exactly 50% of the forty-five-point decline before pulling back to fill the opening gap, but we moved up again into the close. Monday will be a decision day. If we can regain upside momentum, there has been enough re-accumulation to take us slightly beyond 2400. This would also make the wave three structure more complete. If we do this early next week, there would still be plenty of time for the cluster of bottoming cycles to generate a significant correction. We’ll be able to get a better idea of its extent after we see how much distribution has taken place in the top area.   

Daily chart

The uptrend which started at 1810 has formed a wide (blue) channel, which is itself an intermediate channel contained within the bull market channel. The top of the blue channel is identified by two dashed lines. The heavy line at the top connects with the April 2016 top, while the lighter line is drawn across the August top. The lower line is where the rally from 2084 met its 2400 target and pulled back. The fact that we were not able to get all the way to the top channel line is a sign of long-term deceleration which could be the beginning of a rounding top. It’s not something that we should worry about right away, but we should keep it in mind for future reference.