We discussed in Monthly Outlook Update (10/3/14) that "As another time window for a high in stocks approaches, we are on alert for a confirmation of the (September) top or the potential occurrence of a top over the next few weeks."
The proposed 2nd "time window for a top" arrived this past week, SP500 saw a 100+ point drop from its nominal high at Friday's close (Chart 1). Interestingly, price actions are strikingly similar to those at the first "time window for a top" - see the red [c] at the early April turn in Chart 1.
Near term, a (potentially strong) rebound appears likely. The structure of the rebound likely help distinguish the two competing scenarios (i.e. turned or yet-to-turn).
SPX is wrapping up EITHER a choppy but a well-channeled five-wave decline (Chart 2, blue) OR a downward flat (Chart 3, green), to the 200-day moving average (Chart 3). If so, a near term low is in sight. The subsequent rebound is likely to target the two unfilled gaps above (Chart 3).
The red count in Chart 2 anticipates one more up-and-down swing to wrap up the decline, before a more meaningful upswing. Note that an extremely bearish scenario exists. Since one can now count five waves down from the nominal high in SP500, Friday's low could be wave (i)-down of a very bearish 1-2-[i]-[ii]-(i) sequence. We will revisit this possibility when the market reveals its hand.
Our view on the longer term picture remains unchanged. Stocks either registered meaningful top in September or are likely to do so after the next upswing to a potential triple top. We are looking for confirmation of either scenario.