The question right now is whether the Aug 5 top did indeed mark the transition to a trend change to bearish for the intermediate term. There appear to be 5 waves down from the Aug 5 top in the ES complete at the 1631.50 low after regular hours on Aug 21. If so, then the current short term rally from that low is significant. A continuation of the rally to new highs obviates the question, a failure and downturn below that 1631.50 low pretty much confirms a change in trend.
From a fundamental standpoint, the current talk of winding down the Fed liquidity machine is ominous. Yes, corporations have recovered from the recession malaise to some extent, so there is that basis of support for equity prices. But there is no doubt that the Fed money machine has pumped up financial markets to a large extent, and if that machine is turned off - uh oh. So the background news certainly supports the bear case.
If the rally from the Aug 21 low is in fact corrective and destined to fail, then a likely target is ES 1677.00 where Micro Wave a (black letters) = Micro Wave b and where Minute W2 or b (green letters) will = .618 x Minute W1 or a.
There are several alternative IT counts here that are possible and that I am tracking, but they all have much lower probability IMO. When charting EW I take an Occam's Razor ("the simplest answer is often correct") approach, to wit the most obvious EW count is probably the correct one. So I'll address these alternates if they appear to increase in probability, meanwhile the above count is the most obvious.
