Technicals Favor a Pullback

For the last couple of weeks I have been warning that short and intermediate term technical indicators were suggesting that SPX would correct soon. SPX has doggedly edged higher during that time but now appears to have rolled over. Today's intraday reversal (after a news driven spike to a lower high) ended with the market below trendline support and resting on the key 1122 level. This comes after a bullish impulsive 5 wave rally from 1040.

The larger context is a consolidation or pullback in the vicinity of the neckline of a four month head and shoulders reversal pattern. There is some chance that the correction will be a lateral abc formation unfolding just above and below the neckline between 1120-1150.

The McClellan Oscillator is showing a negative divergence on the short and intermediate terms.

The Dow Theory chart shows the first non-confirmation in quite some time as the Transports have failed to confirm the Industrials recent move to higher highs.

These are just some of the many short and intermediate term divergences and non-confirmations that I am seeing on the indicators that I follow. It would seem apparent that some kind of a correction is in order at this time. I do not see evidence that it will be anything more than a relatively mild correction, though I suspect that once begun the majority of market participants will anticipate the resumption of an ongoing bear trend. I'll be looking for a divergence between bearish sentiment and technical indicators together with some kind of three wave corrective pattern to time the next long entry. Traders should continue to hold their core long positions since we are most likely in a bullish impulsive 3 of 3 up and when the turn comes it may be extremely difficult to find an entry point.

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