The next few weeks I think will be critical to determine the intermediate direction of the market. The McOsc is extremely overbought. Looking back to Jan 2004, there are four other instances by my count where the MscOsc was this high in a bounce after a serious correction and above the 50MA (highlighted in blue), but still below the recent major highs. Those charts are below with black arrows showing their aftermath. What do you think is probable here?
I think our current situation looks most similar to the summer of 2010. Note that every instance brought a 50-61.8% retracement followed by higher highs afterwards in 3 out of 4 occurrences. The pullback we just experienced was 61.8%, but now the McOsc is overbought again. The current June 2012 "double spike" pattern in the McOsc looks similar to the first 2007 instance which experienced a 50% retracement before climbing to the highs again.
If there are any DOW theory followers (I know a loose definition, I think) it says something that the Transportation and Semiconductor charts have not made higher highs along with the indices.
Additionally, I find it interesting that the two of the most broad indices I follow, the Wilshire 5000 and NYSE, both reflect rising wedge characteristics.Overall, the most defined-looking rising wedge is on the Bank Index ($BKX). I'll be watching that potential channel bottom for a target zone to take short profits. I'll also be keeping an eye on the 50 and 61.8% retracements on $SPX, 1335 and 1310 respectively. If price drops below 1310 and closes, this study has failed this time and I'll have to consider that the June bottom may be broken.
In summary, it looks like we're in for a 50-61.8% retracement ($SPX) followed by a revisit of the highs. Should be exciting to watch.
