As expected, the market dropped a but yesterday. Volume increased to the downside more than we saw a week ago during a sideways period (wave 4), and we broke below the lower trendline of the move since Feb, both indications of a larger correction beginning. As with all such breaks, if we don’t come back quickly, it confirms the near-term change of trend to down. Given the wave pattern, this would not be the end of the Hope Rally, but a B wave setting up a final sprint towards Sp1250 +/- 25 pts. It may drop over 50 pts before turning back up. We should know shortly if this is a false break or not.
The broader question is whether we are in large corrective pattern, the triple zigzag of the Hope Rally, or a new bull market that will shock & awe the bears. The alt count to the B wave is that we are about to reverse back up in the strongest wave since Feb. Market bears may become as endangered as polar bears if the stock climate warms up that quickly. Given that this rally has been rising on lackluster volume, such a strong wave is less likely than the correction.
This pencast discusses whether March 2009 will turn into a lasting low, like 1932, and compares Tony Caldaro’s view that we are in a major new bull market with Bob Prechter’s view that the Hope Rally is but a bear market rally that should soon end. Tony’s views can be read in his posts Grand Supercycle Revisited, Holiday Update, and Bear/Bull Inflection Point Resolved. Bob’s views can be read in his most recent monthly Elliott Wave Financial Forecast.