The SPX only took one day to reach the minimum mentioned in the last post. If this is an expanded flat (as depicted in my main wave count above), wave c (pink) is just a eyelash shy of hitting 2.618 times the length wave “a” (pink) was. I’m waiting for the daily sentiment summary report from SentimenTrader.com, which is due to arrive in the next couple of hours, but based on their intraday charts, I’m expecting short-term bullish sentiment will easily hit extreme readings. This is when Elliott Wave is generally at its finest. It allows one to logically analyze the wave structure, set Fibonacci targets, and look for short and intermediate term sentiment extremes without regard to the adjenda-driven commentary from the talking heads on financial television. That being said, there is always a chance that one’s wave count is incorrect, or target will be overshot, so I would think that 5 small waves to the downside followed by a partial retracement in 3 waves would be prudently required before calling a trend change.
Note added a few hours later: The sentiment report is in, and bullish extremes did hit record levels in numerous ways today, eclipsing extreme readings that historically have occurred at the beginning of new trends, (like early July of 2010). The fact that record levels of extreme bullish sentiment showed up this late in this 20%-in-3-weeks bull run is that, using traditional Japanese Candlestick reading as a guide, when the candles are longer and longer at the end of a trend, the chances of quick reversal (with follow-through) are very high. This is because the late-comers to the up-trend exhaust all buying, leaving nothing but sellers on the sidelines. When a bit of selling does take hold, with no buyers left to oppose it, the sellers easily take over. The late comers to the rally very rapidly move into loss, and predictably bail out quickly, causing an avalanche of early selling, thereby kicking off a trend reversal.
One last note: Those that believe that today’s patchwork solution to a systemic problem actually fixed things so smartly that the markets should just rally on from here are delusional, in my opinion. This has been one heck of a bear market rally, though.