The 9.84% advance in SP500 from its April low (1536.03) is finally over (Chart 1). The May high in SP500 (1687.18), a fresh all-time high, is 111 index points or 7% above the 2007 top.
In this analysis, we once again attempt to objectively examine whether the rally off the March 2009 low is a bear market rally (albeit a strong one) or a bull market (pullbacks notwithstanding).
In our view, if the stock market rally since the March 2009 low is a bear market rally, the May high and potentially two more higher wave peaks above the May high likely exhaust probable termination points for the Hope Rally. Any bullish development beyond these future wave peaks would favor a bull-market or effective bull-market interpretation.
Specifically, the May high can end the Hope Rally. While not required, the advance off the November 2012 low can accommodate another small-degree high above the May high. Following a larger pullback, while not required, the advance since the 2011 low can accommodate another high. These three highs likely exhaust probable termination points fo the Hope Rally from a bearish perspective. See discussions below.
Let’s count the Hope Rally as a zigzag, to date …
If the rally since the March 2009 low is a bear market rally, it is appealing to count its progress as a simple three-wave zigzag (Chart 2). Under this scenario, we label the March 2009 low as cycle wave a and the pending high as cycle wave b. We anticipate a cycle degree wave c decline.
If the March 2009 low marks the end of a wave four correction, the rally since then should be part of a wave five bull market. Under this scenario, the proposed three-wave structure can easily be mapped into a larger five-wave impulse wave (Chart 3).
The May high, a potential top (T-2)
Tracking Counts (5/17/13)). The blue count in Chart 4 shows an extended wave 3, which is preferable, everything else being equal. If the Hope Rally has ended, the May high should correspond to the blue 5 in Chart 4, and the red (5)[C]b in Chart 2.
Another short-term high, a potential top (T-1)
The black count in Chart 4 shows an extended wave 5. In this case, the May high should correspond to wave [iii] of 5, with the current pullback as wave [iv] of 5. Wave [v] of 5 will push the market to a moderate higher high. If the Hope Rally ends there, that high should correspond to the black 5 in Chart 4, and the red (5)[C]b in Chart 2.
Another high after a more meaningful pullback, a potential top (T-0)
The blue count in Chart 2 suggests that the rally from the November 2012 low is a 3rd wave. From a technical perspective, it is one of the best trending advances since the March 2009 low. So the strength and the profile of the rally fit those of a 3rd wave. In this scenario, once the blue (3) is in place, a more meaningful pullback (blue (4)) should develop, followed by another high (blue (5)) to conclude the Hope Rally.
It’s a bull market!
The three potential wave peaks discussed above and labeled as the T-2, T-1 and T-0 peaks, likely exhaust probable termination points for the Hope Rally from a bearish perspective. If the market continues to subdivide higher after these three wave peaks, it is logical to emphasize bull-market counts or effective bull-market counts (since some bearish structures allow for much higher upside potential).
Thus, from a bullish perspective , we present two tracking counts in Chart 3, an extended wave  (green) and a potentially extending wave  (red).
[green] The market is approaching the end of wave [iii] of (3) of 3 of . Wave  is extending and should continue to trend up nicely.
[red] The market is approaching the end of wave  itself. A meaningful wave  pullback is likely. And the subsequent wave  rally could itself extend to achieve the upside potential of the bull market.
Chart 2 and Chart 3 offer a roadmap regarding where the market is, whether the underlying structure is bullish or bearish. So stay tuned.