Yet another (potentially more bullish) ending scenario for the S+P 500

First off, it is very hard to divine these last few wave movements with any accuracy.  The herd movement is a controlled chaos.  Nobody and I mean nobody does it with perfection, not even the leaders of paid EW web sites.  The best that any EW practitioner can hope for is to slew the odds in his favor AND to define checkpoints for each model that indicate if the model is broken or confirmed to be correct.  While I have had S+P on topping watch for several weeks now, it is still within about 50 points of where I started top watch.

Despite the S+P strength over the past couple weeks I think the index is near a major top.  However, it could have a little more gas in the tank despite recent weakness.  The reason I say this is that this 5th and final wave of the ending diagonal should consist of a 5-3-5 pattern which corresponds to A-B-C.  In fact, all waves of all EW triangles have this characteristic.  Diagonals are thus different from other motive waves which consist of 5-3-5-3-5 corresponding to 1-2-3-4-5.

In the chart below I can count 5 waves into A and then a reasonable case can be made for an a-b-c into B.  And most recently we saw wave small waves up which could be the C and final wave EXCEPT that C cannot be the shortest of the series.  When I see something where a C wave looks to be the shortest, I start thinking it might only be 1 of C.  And so that is what I model below.

Much will depend upon how the current pullback ends.  From 1/C I count 5 waves down.  This means that the near term bottom probable has more to pull back.  The level of pullback here will determine what the eventual peak for C will be.  But I think the best case for stock market participants is shown below and it suggests a final topping as high as 1929.  In fact, if I were elitists running the show, that would be where I would turn it around just to laugh in the face of the sheeple with all their money tied up in the stock market Ponzi.

However, if the chart falls below the bottom green support line (the one coming up from 4) then the model below will certainly be wrong and something else will have taken over.

I also want to point to the Fed Beige Book that just came out.  It's sort of a "state of the economy" document.  Of course, it's really just marketing propaganda to provide cover for whatever the fed wants to do next but we have to act like its honest.  In any case, the recent version just out says the economy grew at a modest pace.  There are words in it like better and best.  Of course,the economy still sucks, jobs still suck and the herd is still very unhappy.  HOWEVER, the federal reserve's balance sheet is just chock full of trash and you have to know that they are looking to unload it on the unsuspected retirement fund managers ASAP.

Saying rosy things about the economy provides cover to do just that.  Besides, we are in the 5th wave up of this move and so at some point we naturally have to expect an a-b-c retracement (fed selling trash assets to suckers).  If and when the fed begins to clear up its balance sheet, you know the stock market is going to get hit.  When the chart below breaks down, so will the stock market.  Bottom line: if you hear the fed continuously talking about the fake improvement that has been made since it started pumping QE into the economy, run don't walk for the exits.  The fed has to talk like that or they will not find any buyers for the crappy "assets" whose stench is permeating from its balance sheet.