We gapped up to Sp1157 and then fell in five waves. The counter rally that faded at the close was 3 waves. This is a signature of a change of trend, with the five-waves pointing in the new direction. Of course, the bears have been calling "top! top!" so much they have lost credibility, yet they are out in force tonight across the blogosphere. They may be back in hiberation tomorrow, but let me set forth their case. (Kilroy Bear picture courtesy SlopeofHope, home of the happy furries.)
The pattern of five waves down and three up is clear across many indexes. This sidebar chart is from Daneric. (Click to make it larger.) The level reached today - 1157 - is right at 1158, a favored target of many bears, where the September to Remember C wave would travel the same distance as A wave from the July bottom to the August top. The time is slightly shorter than the STU turn dates from this morning's post, but fit the STY target of 1158 as well as the Gann 90-day rule between the July bottom and an Oct 1 top. The gap up and reversal is the signature of an exhaustion gap - a gap at the end of a strong trend which reverses back below. The September to Remember rally is the best September since 1939, and one of the best rises for any month - qualifying as a strong move. You can go down a list of additional technical indicators that point to a top here.
Readers know I have been reporting on various historical analogies, with the 1937-38 double-dip the most closely aligned with today. There is some bullish buzz around 2004, which I may highlight next week depending on where the market goes, but it would be remiss not to look deeper into 1939, the last great September to Remember: after the rally in 1939, we fell 40% to a major low in 1942, and remained in a bad market for a decade. We didn't break out of the Depression Market until 1949. Take a look at this 1939 chart, courtesy The Market Ticker, who highlights where we are in pin:
Now, that other September to Remember is really remembered for a different reason: Hitler invaded Poland, kicking off World War II. It is fair to say the world conditions are quite different. All we have going on besides our Imperial Adventure in Afghanistan is a brewing Currency War between China, Japan and the US. Not the stuff of legend, nor even worthy of a Hitler Video.