Well you may have already have heard them all calling the end of this last wave 5. I would shrug it off if it was not the 5th wave of a larger wave 5 representing the end of the rally of the lows of March 2009. Yes the party may be about to take a recess. I call it a recess while a lot of EW protagonists are calling it ( I exaggerate ) the end of the world and the march to a lower low than the March 2009 lows. Those of you who are familiar with the first commentary I issued in 2011; know that I do not necessarily agree with that point of view.
Nevertheless, we are printing the 5th Wave of a larger wave 5; so we have to be cautious and careful to not extend ourselves one way or the other.
The monthly chart , one day from its completion; sports a gravestone doji like candle very reminiscing of the one we saw in April 2010. And the resemblance is even more striking when you compare the March and April 2010 pair to the December 2010 and January 2011 pair of candle. The signs are here , we are approaching a top ( if not already there) and add this to the facts that February is typically one of the worse month for the indexes and one must wonder.

While we started the past week on strong economic data ( consumer confidence and New home sales) the end of the week was about disappointments ( initials claims, durable orders and Q4 GDP). The set backs added to the unrest situation in Egypt and triggered a sizable sell off on Friday.
Now does this mean we have reached the top? One may never be too careful but to try to catch tops and bottoms. Lets look at the indicators. While the drop on Friday may look scary the monthly stochastic %D line still has to catch up with the %K line in the overbought territory and leads to believe there may still be some ground to cover. The MACD and the William %R are not showing weakness yet either.
1313.15 may still be a target if the Wave 5 is still to develop. It has already exceeded 78% of the W3.

Since it is a monthly chart the reaction time is a bit slow so let’s take a look at the Weekly chart.

While the last 2 weekly candles are red candles they are not representative of a large price range and may not yet signify the end of the wave 5 of 5. They may just be smaller retracements. We overtook 1300 this week as I expected in last week commentary and the psychology of reaching an even number may be influencing traders and investors alike and exacerbate the negative sentiment that came out of the news in particular the unrest in Egypt.
The stochastic indicator is still embedded and so is the Williams %R and the RSI (although weakening) . The MACD  is still healthy and has a positive histogram.

The daily chart shows the index is still well within its rising wedge channel and while Friday’s candle may appear scary it is still well within the trend lines. A break below the lower trend line would cause me to revisit my position but at this point I still believe the highs of August 2008 are in sight at 1313.15.
The chart breaks down the minor wave count of this last wave 5. The real question is whether the count is complete and we will see the rally end now.

The RSI and Williams %R  indicators are leading the stochastic and the MACD to the downside but the fact the latter 2 are holding back has me wonder if this is not a temporary situation prompted by sudden and yet unexplained news. It has me also wonder what a calmer situation in Egypt would bring over the weekend.

The 60 minute chart at this point hints that the past week looks like it has completed the ABC pattern referred to in my commentary from last week. I was expecting this to occur earlier in the week but it look like this count may be valid. (An alternate count would have the minor 5 and larger 3:5:5 complete on Friday before the GDP announcement at 1302 and in the early stage of 4:5:5)
I am going on a limb here and will certainly go against the grain but it looks to me that although we made a new high at 1302 this was part of a extended flat correction. The weekend should give light to the situation in Egypt and if so would spurt a return to the market and a new run to 1313.15.
The oversold indicators seems to validate my theory and position at the moment. If I am wrong I will revert to watching the lower trend line of the rising wedge on the daily chart.

So I will conclude by saying that betting on the short side at this point would be just this: a bet , at this point. And as in most bet there is a certain probability to be correct and another to be wrong. Until the lower trend line on the daily chart is broken I will remain on the side of the bulls and watch carefully.