View of the S&P500, banking and oil charts show early signs rally may be over, bounces to be sold from now on

The S&P 500 and equities indices generally dropped sharply this morning, many probing under Thursday's low. That was aggressive considering this was only one day after some made new highs on Friday! Readers know I've been growing bearish on the rally's prospects even while trying to avoid calling the top in too soon. Well now, the Elliott Wave pattern suggests to me that either we finished the fifth wave of the rally after all, or only the final 1st of wave 5 of "c" of "c" of primary "b". Whew, what does that mean?! Well, it means perhaps there remain the "couple more subwaves up" I've mentioned - but I'm not feeling that's likely. More likely, we see a bounce tomorrow if the ChartsEdge weekly points to the weekly high being tomorrow, and then downhill.

Below are Tony Caldaro's hourly SPX chart and a daily chart of my own for SPX. Elliott Wavers will see that today's low under Thursday's low means we confirm 5 waves completed on Friday. Here's how Tony himself describes the situation in his update this evening (you can find links to this at his site, at the right side of this page):

Coming off the SPX 1039 uptrend high the market pulled back 23 points into today's low. This pullback is the second largest of the uptrend, only exceeded by the 39 point decline between Intermediate waves A and B. The OEW 1018 pivot is important, and a print at 1010 and lower would confirm a break of that support. The next OEW pivot at 990 is the more important one. A break of that pivot would indicate that this uptrend and the bear market rally are likely over. Today's gap down was similar to the monday gap down following the SPX 956 uptrend high in June. Should the similarity continue the market should rally a few points above today's close before making a lower daily low tomorrow. Best to your trading!

One trading buddy from the site where I was a member last year left a comment today that I really appreciate, especially because it underscore the importance of the rally being (most likely) over:

For those with 401(k)'s in which the number of round trips is limited to one per quarter, you made an excellent point about being positioned defensively just in case the bulls' impending 20% pullback turns out to be the bears' crash and retest of the March low.

Once the Elliott Wave downturn is confirmed, it would be wise to transfer 401(k) equity holdings to a stable value or bond fund within the 401(k) in order to preserve capital. Once a bottom is confirmed, then begin dollar-cost-averaging back into a full equity position.

Keep up the good work in presenting analyses which balance the bulls' and bears' arguments.

Thanks and it's a great reminder this is what it's all about - "No Bull, No Bear, No Bias"!. Just a commitment to sizing up the markets as objectively and well as we can. For the benefit of everone who's trying to position to (1) protect capital, and (2) trade profitably.

Folks - if tomorrow is simply an opportunity to sell at a somewhat better price, and the SPX cannot crack 1027 then 1030/1033, 1037 again - I ask each one to reflect on what may happen if the market really does re-test the March lows next. Yes, I've got some cycles reasons to think the market makes an important high in 2010, but that doesn't preclude another sharp low first. Re-testing the March low may seem a bear's dream - but be prepared also for the types of social, economic and political ramifications of such a move. It probably won't be pretty.

Also below I'm posting charts of banking (KBE) and oil. Sadly time doesn't permit me now to say in words why these look bearish to me. I'll try to return later and augment this post with such comments. For now, just look at the indicators and you should get the idea!