Friday high/low is important

Active signal: None
Hourly trend: Up with support at 1070.77...not far below
Daily trend: Neutral since the 20dSMA was tested
Profit targets: No active signal
Trailing stop: No active signal
Last signal: Draw. Sell signal at 1030 on 7/6. 1/3 profit taken at 1019 by rule. Closed flat at 1035 on 7/7 by rule.

System Notes:
I did a rough 3-year study of instances when Dow and SPX tested their 20dSMA on different days. Usually, treating the first 20dSMA touch by either index as a test day worked well. That means even though SPX did not touch its 20dSMA until today, I am tracking Thursday as a Test Day and Friday as a Marker Day (see System Rules) which means any close beyond Friday's high/low should set the next multi-day trend. Unfortunately for bulls, in this situation, even if the trend turns up, the system will recommend heavy profit-taking at the 50dSMA and 200dSMA not far above. Still, 1-2% trade gains are possible. If the trend turns down, on the other hand, downside is much larger. Luckily, the Marker Day (1068-1078) is a tight range. So, we'll likely get a decision Mon/Tues. Any gap of >.5% as measured by SPY (since SPX does not usually show gaps well) also sets the likely new trend at this stage.

Opinions:

Hourly RSI surpassed the level achieved at SPX 1131 but daily did not confirm. Price has not overtaken 1090ish and time has not exceeded Monday yet. So, I am sticking with my preferred count for now. I see several folks are entertaining an LDT count from 1220 like me, but my alternate LDT count is different in that it still contends 1040=w1, 1131=w2 with the recent low at 1011=w3 rather than Minute [i]. That limits wave 4 upside to 1110ish but realistically no more than the 1090s. Admittedly, the bulls showed some strength this week, but they are now at more serious resistance: the 20dSMA, 1090-1110 congestion and the 50/200dSMAs just above. If my preferred count is still in play, I'd expect a reversal down by Tuesday that rapidly falls below 1000 in a week or so. If the LDT is in play, SPX is probably finishing wave A meaning 1058 or even 1040 may be challenged next week in wave B before a C wave up to 1080-1100. The bullish case could start out looking like either of those but it should hold 1040 and it should exceed 1100 with gusto. So, my preferred count will probably be solidifed or completely discarded by next weekend since it favors a rapid descent. As I mentioned today, I am cozying up to the LDT scenario and almost expecting to need to switch counts by next week. But, these strong rallies did occur many weeks during the previous bear market and my 3 main watch items (RSI, price and time) have not exceeded parameters for me to change my count, so I'm sticking to my guns and hoping the System will keep us steered in the right direction.

I updated my USD (US Dollar) chart from earier this week. Most people have recognized the negative correlation between USD and SPX for years. It has not always been that way. From my study of the monthly charts from 1982 to now, it appears that the USD generally rises best with stable interest rates, organic economic growth and commensurate monetary policy (like 1995-2001) when baby boomer spending and the technology cycle was peaking. It appears USD does worst with falling interest rates, imbalanced forced economic growth and excessive monetary interference (like 1985-1986 and 2002-2004). Although rates are historically low right now, they are "stable" and will probably be that way for a while. Although economic growth since late 2008-early 2009 has been imbalanced and forced, the government stimulus programs have nearly run their course and Stimulus III looks unlikely. Although monetary policy was extremely accommodating for the last 2 years, the Fed has closed out many of its programs, is under intense scrutiny with an audit expected and has taken its foot off the gas to see if the economy can stand on its own. So, stable rates for people to plan around, reduced monetary interference and very slow, but more organic economic growth favor a USD that grinds higher. I don't expect USD to skyrocket unless natural economic growth takes off which is nearly impossible without a major technological breakthrough since the baby boomer spending cycle, technology cycle, credit/debt cycle and oil production efficiency cycles all peaked. And, the European problems help the US Dollar, while emerging economies and China easing their yuan peg hurt the US Dollar although less than one might think since their destiny is tied greatly to the US, so that still favors grinding, upward USD action with spikes during sovereign default scares as the USD maintains some of its safehaven status.

What does that mean to SPX? Well, with a choppy, rising USD not based on strong economic growth, SPX should fall. If the Fed and govt decide to sacrifice USD with ramped up monetary interference and stimulus, SPX should get a boost, but given the bad natural prospects for economic growth which are now proven for the world to see despite all the bailouts and Stimulus programs which worked better in decades past, I don't think stocks would benefit as much next time around and the Fed probably knows it so expect some new twists. On the long-term USD charts, I noticed that SPX usually does not buy into a long-term USD trand change until a secondary support/resistance level is broken. Getting down to lower timeframes, I noticed on the USD chart since December 2009 that SPX has traded sideways during USD wave 1s and 5s. Many expected SPX weakness during such USD rallies but it has been strong as monetary policy, stimulus and economic hope were strong forces. Using the same logic to explain it, SPX rose strongly when USD fell in wave 2s and 4s. And, the only time SPX really fell was during the heart of USD wave 3s when USD was running particularly strong. See the chart.

So, the short-term charts tell me USD is about to enter a 3 of 3 up from December 2009. SPX has smelled it and has thus only traded sideways for the last month while USD dropped considerably. This plays into my 2 preferred scenarios. The first being an SPX Minor wave 3 trip down to 850-925 and the 2nd being one more lower low to complete an LDT with a 1+ month SPX bounce. If the USD wave 3 of 3 has a slow, deep wave 2 of 3 of 3 down possibly after it gets rejected by its recent high, then SPX may rally after an LDT. But, if USD breaks out, I suspect SPX will cascade down and rally in Minor wave 4 when USD decides to backtest its breakout then continue on down in wave 5 as USD completes its wave 3. If I am wrong and the USD continues much lower, then I think SPX will rally for a while until USD retests its April low.

BTW, if my USD count is right, FIBBEWIE (see Terminology) suggests USD should be going to 98+ in 6-12 months. The key level that would accelerate SPX downward is the B-wave high of 92.63 in 2005. I think USD may pause there briefly but surpass it causing the heart of SPX wave 3 down before USD backtests 92.63 and then continues up to 98-100+. Based on NOPOZO (see Terminology) attraction, I'd favor a 102.5 target or a little higher. Gold will likely drop as USD rises but gold has other linkages like fear of sovereign defaults that could soften its fall.Good luck.