Another look at the S+P 500: great caution is advised.

In a recent post I suggested that the S+P 500 is looking ready to roll over.  I want to follow up on that post briefly again today.  In short, the S+P 500 chart is looking more and more like the expected massive Elliott "C" wave has played out as an ending diagonal and that the top is in.

I like this EW interpretation/modeling of the chart because:

• It shows a clear A-B-C retracement (see chart markers labled in red) in line with Elliott wave guidelines.
• The C wave was clearly the strongest wave, again in line with EW rules.  Note: measure this from red B to red C to really understand how strong the "C" wave was relative to the "A" wave (red A).
• The ending diagonal is very well formed, textbook even, with a throwover on the 5th wave of the formation (designated blue "e" below).
• The overall formation forms a massive double top, at least to date, which indicates that despite all of the new money printing Bernanke has done that markets have run out of animal spirits.  In other words, it appears right now that the smart money does not think Bernanke can pump the Ponzi any higher.

Again, if Bernanke could just convince his Wall St pals to pump the charts to a higher high than was seen in 2007 then he could make a lot of people (and trading computers) believe that there is more easy money to be won.  He is so close right now that failing to do it will indicate that he has completely run out of steam, ammo and influence.  I am 1,000% sure that before this crisis is done playing out that people will spit when they hear Bernanke's name.  He will become utterly reviled as the destroyer of fortunes if not as the destroyer of nations.  Yes, that's how bad the damage is that he has done even if few people have the eyes to perceive it at present.  1 week before Madoff was exposed nobody would have dared to call him a thief and a liar and a dirty con man but he was and is all of those things.  Bernanke is Madoff but turbo charged and running on pure nitrous oxide.  Now that his protector Obama is re-elected, Bernanke will be faced with very hard choices: stay the QE course and ruin the dollar (and the whole federal reserve system) or start letting the bankruptcies and job losses happen and eventually let the Ponzi cards fall as they should have been allowed to a long time ago.  I think he will choose the latter and that his goal will be to crash the airplane as softly as possible.  A soft landing is now impossible.  The measure of success at this point is how few people literally die in the crash.

Watch for a break down below the lower green support line, especially one that occurs on volume and "with gusto" (i.e. with gap downs, etc.).  That will be the likely signal that the herd is starting to panic out of these significantly overvalued markets.