Last night, we noted that we should expect a rally today. But, there is no question that the market has now rallied more than I initially expected. However, believe it or not, it is not too high for a 4th wave. In fact, as I noted in the Trading Room, since wave 2 of this decline was so small, the theory of alternation would support this large of a 4th wave.
Alternatively, when I look at the VXX chart, it is entirely possible that this is part (only the a-wave) or all of wave ii, with red i having already completed. While this is clearly not my ideal pattern, the VXX pattern, at least to me, supports this interpretation.
So, what does that mean to me at this point in time? Well, it means I am unable to get bullish looking for new all-time highs just yet. What will put a different spin on this for me is if the market were to fill out a full 5 waves up in the cash index, as presented in the 3 minute SPX chart attached. (And, if the wave 3 extends beyond where I currently have it labeled, I will still need a 4th and 5th wave). If that were to play out, then I would be much more inclined to view the last bottom as the green b-wave bottom, with this 5 wave move as wave i of the c-wave to the 2150+ region to complete this larger ending diagonal.
So, while the market has still not completely tipped its hand just yet, it has come much closer to that hand tip, and will hopefully give us our answer tomorrow.
There is one more point I would like to make. Yesterday, I felt like I was fighting with those that were very bearish about not ignoring the bullish potential still left in the market. And, today, it seems I am pleading with those that are bullish to not ignore the bearish potential. The market has not yet tipped its hand, and is still just as dangerous as it has been for the last few weeks, and arguably even more so today.