Max. Projection 95-100% Complete – Distribution Should Start

Market Overview

Last week, SPX continued what is ostensibly a countertrend rally, tacking on another 52 points to the uptrend which started at 1810 for a total of 199 points. That performance is not likely to be repeated next week, for the simple reason that, if the maximum total P&F base count prevails, we should be just about done. We will soon find out if this premise is correct because, at the late stage of a rally, this is the time that distribution begins to appear. It may have started on Friday and could take several weeks to complete before the index can resume in earnest its primary trend to the downside.

The structure of the rally is turning out to be an ascending wedge which, besides being close to reaching its full count potential, has also retraced .618 of the previous decline from 2116, another reason to expect the rally to come to an end at this time.

Since this powerful rally has put the main indexes in a strong short-term uptrend, there is no visible confirmation that it is ending except, perhaps, some early signs from a least likely source: the strongest index of the bull market, the NDX, which has closed unchanged for the past four days while prices kept climbing in the SPX and DIA.

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

Another sign that the rally is coming to an end is that the resulting wedge pattern was penetrated to the upside (overthrow) on Friday. Normally, this is the end of the move; a form of ending climax – providing, of course, that we don’t keep climbing out of it, but start to retrace immediately. If we do that on Monday, it will be additional proof that the rally has ended. It would be ideal if we were to reverse from here and start a new downtrend. A new trend line could then be drawn at a steeper angle than the primary one, suggesting that the bearish trend is accelerating. But we are getting ahead of ourselves! First, let’s see if a top is being created and prices beginning to decline.