MTU-Stocks Top(ping), day 3 (1/15/10 Close)

The countdown to the end of this 11-month rally is on track
MTU-A primary degree trend change ahead (1/8/10) – The primary degree rally since last March is coming to an end. Stocks may top as soon as the week of 1/11/10.
MTU-Stocks Top(ping) (1/13/10) -- The Dow likely has topped. The rest of the indices have lagged behind during Wednesday’s rebound, a sign that they likely have already topped. In retrospect, Wednesday marks the actual high in the Nasdaq and Russell indices, as well as in the SPX futures.
MTU-Stocks Top(ping), day 2 (1/14/10) – The Dow and SPX cash indices subdivided higher, but are well advanced in their topping process. In retrospect, Thursday marks the actual high in the Dow and SPX cash indices.
1/15/10 – The Dow -1.24%, SPX -1.08%, Comp -1.24%, RUT -1.41%.

Countdown to the top continues until an initial confirmation of the top
Friday’s decline gives an initial indication of the top. Within the ending-diagonal description of the recent wave structure, there’s a chance that Friday’s low is wave [d] (especially in SPX), to be followed by a wave [e] run-up to the top. Thus my countdown to the top should continue until we have an initial confirmation of the top. A further decline that takes the indices out of the ending diagonal territory would be an appropriate initial confirmation.

Chart 1 offers my count of the Dow’s trajectory over the past month. The primary count assumes that the Dow has topped and today’s low is wave [i]-down within a NEW down trend and wave [ii]-up rebound is in progress. The alternative count assumes today’s low is wave [d] of C and wave [e] of C is in progress toward a fresh high. The thick line indicates threshold levels that will give an initial confirmation of the top – around 10540 in the Dow or just a few basis points below Friday’s close of 10609.65.

A primary degree trend change
Why is this particular top such a big deal? Because there’s a non-negligible chance that the New down trend goes beyond a typical 10-20% correction by retracing the entire rise since March and possibly much more. If that were to happen, it would surely be very disruptive to most people. For a list of top scenarios regarding market’s intermediate term (next 1 to 3 years) trajectory from an EWP perspective, please see discussions in A New Year’s Resolution (12/31/09).

As if to accentuate this risk, the entire rally counts well as a triple zigzag (which is corrective and indicates a bear-market rally) rather than a five-wave impulse wave (Chart 2). Moreover, it will stretch things to count what’s labeled as (5) in Chart 2 as a five if the top is in already. In other words, a new high is likely necessary to achieve a five for wave (5).