MTU Weekend Ed. - Short Term Update (9/20/13 close)

SP500 reached and exceeded the projected target of 1719 this past week (see Gap Dynamics (9/13/13) ) but immediately pulled back to 1708.89 from Thursday’s high of 1729.44. What’s next?

Rushing the count just a little, it’s now possible to count a completed five wave advance from the 1628.05 (orthodox) low in SP500 (Chart 1, red). A less-rushed count places the recent high as wave 3 off the low (Chart 1, blue). Odds appear to favor the latter as

[1] To some extent, Friday’s higher highs in Nasdaq indexes challenge Thursday’s highs in other indexes being a major high, end of a five-wave advance. See Chart 2 red. Chart 2 also offers two additional near term tracking counts on NDX.  See A look at NDX (7/19/13) for analysis of larger-degree counts.

[2] If Thursday’s high marked the end of a five-wave advance, the mid-cap SP400 index represents a rare failure (to make a higher high). See Chart 3. Note that barring a change in market characteristics, SP400 has been a higher beta index in recent years.

To reconcile these developments, it’s prudent to consider the following possibilities:

[1] The near term pullback in stocks is a small degree fourth wave.  The prior neckline (Chart 1 green) offers potential support.  Wave five will deliver a higher high.

[2] The correction since the May high is a skewed triangle, with the near term pullback as wave E of the triangle. The post-triangle advance will deliver a higher high.

in addition to the possibility that
[3] A five-wave advance from 1628.05 in SP500 is over. A pullback or a reversal is in progress.