|NASDAQ COULD BE IN FIFTH WAVE ADVANCE... The recent downside correction in the Nasdaq market took place in three waves -- which qualifies that as an A-B-C correction. This week's move to new high ground signals the completion of that minor correction. While that's good news, there is still reason for some caution. That's due to the make-up of the rally that started during March. If we examine the waves closely, it appears that the Nasdaq has advanced in five waves. [A five-wave advance is comprised of three uplegs and two intervening corrections or consolidations]. My read of the wave structure is shown on the chart below. As a result, I find it hard to get overly enthusiastic about the latest move to new highs. If anything, it may just have brought us closer to completion of the upwave that started in March. That could set the stage for another correction or consolidation phase -- which could occur during the traditionally weak September-October period.
S&P 500 IS SHOWING NEGATIVE DIVERGENCE... When a market is in a fifth wave of an advance, short-term divergences become especially meaningful. As Chart 2 shows, the S&P 500 has yet to confirm the Nasdaq move to new highs. It may still do so; but it hasn't yet. Until it does, this week's move to the upside has to remain somewhat suspect.