Here is an update on the bullish Elliott Wave counts posted here a couple of days ago.
Although SPX could have put a top in yesterday, and has opened slightly lower today, I don't see enough divergence on technical indicators to confirm a top. I think the market has the potential for one more rally, but technicals are overbought and the market is ripe for a correction. Tom Demark (a good market timer) predicted a top today on Bloomberg TV.
The blue trend-line in the chart below connects the Jan 2008 and April 2011 tops and it should offer important resistance to contain 2 out of 3 counts that are in focus (on a closing basis). In the chart below these two higher probability counts are marked in RED and GREEN.
The RED count completes wave (3) of III. Wave (4) should not overlap with wave (1) so this count would be invalid below 1266.73
The GREEN count completes wave 1 of (3). This count allow a correction all the way to 1202, though in practice in should find support around 1260
If the market vaults over the1330-1340 area contained by the blue trendline, we will shift focus on the count in YELLOW which would put us in an incredibly bullish wave (iii) of 3 of (3) of III. Such waves do occur from overbought conditions and markets stay overbought for a while as third waves accelerate.
There is a potential for a VIX reversal here. It is at support line since April 2011. RSI shows a positive divergence. A complete Elliott Wave pattern (Ending Diagonal) is seen. Closing above 24 will be positive for VIX and bearish for the SPX.
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