Market Top?

This was a very interesting day for the market to say the least. The struggle to find direction continued, with the market starting the day to the upside. With the low end of our target range for the SPX sitting at 1378.79, we watched the action in the first half hour of trading very closely. The push higher, however, fell just short of that target, with the high of 1378.04 coming within a mere three-quarters of a point of that target level.

With the SPX coming within a fraction of a point of our target, the question becomes whether or not we should consider this our forecast top. While the SPX failed to meet its target level, there is considerable evidence to point to this as our forecast top.

While Wave 5 did not meet its target, Wave 5 did fall within its target. Since we have identified this as Wave 5 of Wave 5, if Wave 5 has topped then by extension we can infer that Wave 5 has also topped. In addition, both INDU and the COMPQ reached their target level for Wave 5 of this wave sequence.

We believe this is enough evidence for us to call 1378.04 the top of Wave 5. Since we have not fallen below the range for Wave 5, there is a small chance we could see one more rally to slightly new highs, but we feel this is extremely unlikely. At this point we do not see the markets reaching new highs anytime in the near future. We believe we have now entered a correction phase, and will proceed accordingly.

Our model does not project target points at this stage, but again, it is our contention that this is a correction of the rally from the March 2009 lows, so the correction could be fairly steep. There are several forms that the correction can take, some of them allowing for new highs, but at least for the medium term we will see a downtrend. We will elaborate on the possible forms the correction may take in the near future.