Is the Current High in Stocks a Major Top?

Based on the application of logic to pattern based market analysis, we can contextualize market movements beyond a simple qualitative or visual analysis.

One of the key logical concepts to understand and apply to market pattern analysis, is that when an important phase of market action completes, the last portion of that price pattern should be completely retraced by subsequent price action  - in LESS time than the last part of the pattern took to form.

Additionally, if a larger scale or "degree" pattern has completed, then the new psychology of the market will be evident by explosive price action in the direction of the new trend.  In a practical sense, when a trend shifts, it is apparent on a price chart by a move that is both larger and faster than any counter trend movement in the prior trend.

Applying these concepts to the current market, I would say that if price is back below the May 15th low in SPY, by Aug 13th, then the price action would be logically confirming a large scale top has completed at the recent high.

So keep these ideas in mind moving forward.  If we do see such confirmation of a trend shift, it will likely be part of an explosive downward phase of price action.  In my experience, the initial phase of a trend shift can be very vertical and most traders will miss it and wonder kind of what the heck just happened.  Often times then the initial sharp movement down will be retraced by a more time consuming rally, that will offer a better and more clearly visible shorting opportunity.

Thus far on this correction, there has been no buy signal generated by my bottom spotting system.  If there is one I will note it here, but dependent upon the technical analysis at the time I may offer commentary as to whether I think it likely to be a successful signal.  Recent signals have been near perfect for over two years.  However, it may be reasonable to expect a solid bull market buy signal to be negated at the onset of a new major bearish trend.  We saw similar activity coming off the major 2011 highs.  I will here update as things unfold.

For now I personally view the dominant price direction to be DOWN in US stock indexes until otherwise noted here on this blog.