Stock market broke prior week's support and probed meaningfully lower with force. A down-up-down sequence from the February high completed this week, and has been followed by a respectable rebound into Friday's close.
There's substantial amount of ambiguities regarding whether the sell-off is a correction or a trend changer (see below). The path of least resistance (or more appropriately, the path of least support) is now down.
A violation of the current low suggests at best a larger correction and at worst the end of the hope rally. The personality of the decline should be informative.
Bearish counts will continue to linger even if the market continues to rebound - recall the April-August episode last year?
Odds favor perhaps the most bullish and the most bearish bearish counts (Chart 1) based on the bullish and bearish elements outlined below.
Bullish counts - The correction is over, tracing out an ABC structure. Two variants of this count are a larger correction with the current rebound being wave [x] of a double three or a sideways triangle with the current rebound being wave [b] (Chart 1, blue).
Bearish counts - The market is tracing out a series of 1s and 2s, with the current rebound being (ii)-up of [iii]-down (Chart 1, red). A variant of this count is that the current rebound is wave [iv] of 1-down to complete an initial 5-wave decline (Chart 1, purple).
On a daily basis, the second down leg is accompanied by improving breadth (Chart 2). It should be noted, however, intraday selling has been quite intense over the past week.
The market found support, for now, at  the trend channel since the July low,  the trend line since the March 2009 low, and  the 50-week moving average (Chart 3).
Mid-caps, small-caps and transports have been much more resilient than large-caps.
The second down leg moved beyond equality with respect to the first down leg.
The second down leg moved beyond the base channel.
The market is now below its 50-day moving average and the deterioration in the technicals on the weekly chart is notable (Chart 3).
Bearish event risks.
NDX has been one of the hardest hit indexes so far. But it also has the clearest positive divergence on the 60-minute chart (Chart 4). Chart 5 offers a bullish squiggle count of the rebound.
Appendix - futures
Bullish, semi-bullish and semi-bearish, bearish counts.
Squiggles from the low