U.S. stocks broke down on Friday in reaction to a recent string of disappointing data. It is interesting to note that the latest sell-off was triggered by fundamentals rather than by a technical level breach which took place in mid-May.
From an EWP perspective, the market is likely at a juncture facing
 a major Capitulation with a sustainable bullish move ahead (Chart 1, green and black)
 a minor capitulation with a temporary (but meaningful) bullish rebound ahead (Chart 1, pink)
 a point of recognition with a sustainable bearish move ahead (Chart 1, red)
Chart 2 shows how these top scenarios fit into the structure of the Hope Rally as discussed in Inside Week (5/25/12). In Chart 2, the black labels would be associated with the major Capitulation count whereas the red labels would be associated with the minor capitulation count as well as the point of recognition count.
However, price actions in U.S. Treasuries appear to suggest that scenarios associated with some degree of capitulation is more likely. Chart 3 presents a long term picture of the 10-year benchmark Treasury yield. Please note that UST10Y yields are
 approaching the bottom of a channel dating back to the mid-1980s, and
 completing a potential long term zigzag as well as an intermediate term potential EDT: five-down for [A], some messy consolidation for [B], and an ending diagonal triangle (ABCDE) for [C].
It should be noted that the more bullish count (i.e. the major Capitulation scenario) now faces key challenges. While neither is crippling to the bullish case (see below), the burden of proof has clearly shifted. The key challenges are
 We now have a visual five-wave decline from the nominal high in SP500 (Chart 1, pink), as well as in many other benchmark indexes. According to EWP, the sell-off to date is likely only the initial decline with at least another meaningful sell-off to come once a potential rebound is over. The counterbalancing development is that the Dow actually made a new recovery high at its May top, raising the odds of a truncated high in SP500 and hence the odds of the black and the green counts in Chart 1.