Near term outlook
Since the February high, SPX has now completed what appear to be three waves down to the March low, three waves up to the May recovery high and another three waves down to the recent low (Chart 1a, 1b).
The three waves up to the recovery high, in conjunction with the larger wave structure, suggest that they are part of a correction rather the end of a rally - although there’s a way to count the May high as the end of the run (see long term outlook below) whereby the current decline should run for a while.
As a result, the logical structures for the proposed correction are
(1) an expanded flat, with wave 3-down of C-down just completed. A probable leading diagonal off the May high and a sharp decline off the June high lend weight to this count. If so, expect a lower low following a small-degree fourth wave rebound capped around 1310.
(2) a triangle, likely of contracting type, with its wave C just completed. If so, expect a wave D rebound to the 1340 area before a final wave E retrace. A new recovery high follows.
(3) a complex double three (W-X-Y), likely completed. If so, expect a run to new recovery highs.
Long term outlook
How does the market development in recent months fit into the long term picture? I update the top tracking scenarios below.
 Triple Zigzag (Chart 2)
The February high is [Y]-up of b-up, with the current decline being [X2]-down. See QE Fractal Projection (5/27/11) for details.
 Large Double Zigzag (Chart 3)
The May high is [W]-up of b-up, with the current decline being [X]-down.
 Small Zigzag (Chart 4)
(a) The May high is b-up. The hope rally is over.
(b) The February high is (3)-up of [C]-up, with the current decline being (4)-down of [C]-up. The hope rally will be over after one more recovery high. The wave degree under this interpretation is likely one lower, but message remains the same.
 Bull Market (Chart 5)
The February high is 3 of (1)-up or 1-up of (3)-up, with the current decline being 4-down of (1)-up or 2-down of (3)-up. New recovery highs are on the horizon.