Tuesday's update noted that the market had reached a significant inflection point, and anticipated that the S&P 500 (SPX) would rally over the near-term, with a target of 1840-48. That upside target was reached early Tuesday, which led to a deep retrace and retest of the low. The upside target zone was then exceeded in Wednesday's session. SPX also cleared the noted 1850 pivot and broke out of the down trending channel.
As I covered in detail in the last two updates, I was concerned that sentiment had become a bit too bearish, and that a rally might be needed to "punish" the newly-converted bears. Frankly, the rally in SPX exceeded my expectations -- punishment indeed, and it certainly must have been painful for those traders who weren't expecting any rally at all. Bears have now been forced into a final stand at the key resistance zone of 1873.
The NYSE Composite (NYA), on the other hand, has only marginally exceeded its second upside target zone (10,440-490). The two wave counts detailed on Friday, which warned of a potential bottom near 10,250, are also both still standing. The key pivots are noted on the chart.
The bond market continues to hint that there may be underlying stresses in play, and the ratio of High Yield Corporate Bond Fund to the 20+ Year Treasury Bond Fund (HYG:TLT) is now poised at an inflection point:
In conclusion, last update covered the intermediate bull argument in detail and was, in fact, bullish over the near term -- but ultimately concluded that treating the bounce as a selling opportunity (essentially until proven otherwise) was a reasonable stance. Bulls have certainly added some excitement to the game, since the upside targets were reached and exceeded. Nonetheless: Rules are rules, and the key 1873 (intermediate) level has not been reclaimed yet. While I have a few indicators on early buy signals, ultimately, price trumps indicators. Therefore, the bear case still stands as preferred for the moment.
Bears will need to reject the rally rather directly and defend 1873 to avoid facing yet another new all-time high -- and while I can't say for certain that's what will happen, the very short-term charts do suggest that as a distinct possibility. The next few sessions should be revealing. Trade safe.