I’ve received several emails from those concerned that the recent gains in the market have most likely negated the recent longer-term sell signals as the price action has just been overwhelming bullish so I wanted to follow-up on the snap-back rallies chart and discussion from Friday.  I’ve made an updated version of that chart (screen-shot taken just before today’s high-volume dump into the close) in which again, the red arrows mark EVERY market peak that preceded a major sell-off over the last two year and on this version, I only included the white arrows marking the peak of the subsequent snap-back rallies.  Without exception, the market retraced nearly all of the initial move down off the top.  Those initial moves down typically lasted only a few days to no more than a couple of weeks… essentially similar in scope and duration to the move down following the recent Feb 19 & 20th double-top high.  Only time will tell if that will turn out to be a significant & lasting top or not but so far, I honestly can’t think of much more technical evidence that could be added to make that case.

With all that being said, history does not always repeat itself.  The recent drop could prove to be a blip on the road to SPX 1600+; we could easily go on to make marginal new highs before the next major top is in; or we may have seen the end of the first counter-trend bounce in a new downtrend that started last week.  All that I can say at this point is that I still favor the latter (top was put in last week and we are at the tail-end of the range of the first snap-back rally) and if that assumption is correct, then as the chart below illustrates, the recent retracement that we’ve seen over the last few days is well within the historical range of all similar initial counter-trend rallies for at least the last two years.  P.S.- For those who like to utilize fibonacci retracements in their trading, all 5 of those post-top initial retracements exceeded the big 61.8% level with most, if not all, reaching or exceeding the 78.6% fibonacci retracement level.  Today the SPX reversed just shy of the 78.6% retracement level.$SPX snap-back rallies 2-27-12