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For the last several months, I have been ranting about how the decline from the April high did not count as a five-wave decline but, rather, more as a corrective decline. On Tuesday, when the S&P 500 broke above the prior high of 1422.38, the move invalidated the bears' bigger case for calling that prior pullback a five-wave decline. This is because a wave 2 retracement cannot retrace further than the start of the prior five-wave move. A move beyond the start of the prior decline told us clearly that the prior pullback had never been five waves down.

However, I am sure you will start hearing about how the market has now topped in a larger-degree wave 2, and that it has started 3 down. Again, I say to those analysts, "Let the market clearly prove it to me with five waves down."

For several months now, we have had a target of 1423 for the E-mini S&P futures. In fact, this was the minimum target region we'd expected the E-minis to hit when we presented our targets for this move up back in June. On Tuesday morning, as the market was preparing to hit that target, my suggestion (on

) was for everyone to sell long positions once that level was hit, and for traders to set up short positions. Well, we saw a reversal from that region, just as we would expect.

However, there is still a question open as to whether that was the top we've been expecting before the S&P embarks on a larger corrective move down to at least the 1340 region.

First, let me explain the issues that I have with calling it the top. First, there is still a significant amount of bearishness among traders. Tops are not made with significant bearishness -- they are made with significant bullishness. Second, the up volume Tuesday seemed stronger than the down volume. Third, the decline did not have a clear five-wave structure. Also, the move that should be counted as a third wave down did not clearly exhibit the technical indications of a third wave.

The other reasons I have are based upon incomplete patterns in many charts that we follow, including in the Russell 2000 futures,



, silver and the dollar. Although the E-minis chart does invoke some problems regarding the claim that there is more upside to come, there is a way to count it as an ending diagonal, which alleviates the problem. Still, I am not comfortable with either of these analyses on the E-minis at this time.

If we move onto the Russell 2000 futures, we see a very nice trend channel that also has only three waves completed, and which adhered to very nice Fibonacci extensions and retracements. In fact, on Tuesday the decline took these futures exactly to where a fourth wave would find support -- at the 1.00 extension.

Additionally, the dollar index chart we analyze has followed through to the downside almost to the penny, but it is still leaving us with one more pullback yet to be seen, with a likely target in the 81.40 region. As for this potential pattern in silver that we've been following now for well over a month -- it, too, seems to need one more upside wave before the pattern completes. Lastly, our Apple chart topped exactly where we expected today, and also seemingly with one wave up remaining to complete its pattern.

So, for now, on our E-minis chart, I am going to potentially count this pullback as the other charts have framed it -- a wave iv. Of course, if the E-minis do drop below the 1403 level, I will count this as the a-wave of the larger (a) wave of the corrective decline that we are expecting, which will target at least the 1340 region. I am looking toward the 1403 region, because that's where a standard five-wave move would target, and it would give us more confidence that a five-wave pattern has potentially completed off the highs. However, if the E-minis were able to climb above the 1418 level, then we'd begin to look at targeting our next-higher target region at 1427 to 1431. That could proceed to provide us with a completed count and a top that we can consider much more solid.

See charts illustrating the wave count on the E-minis, the dollar index, Russell 2000 futures and silver



At the time of publication, the author had no positions in any of the securities mentioned.