Initial claims stank. Futures are down. However, it looks like SPX will be testing 1085.76 support. Remember, it must be broken by .1% and the 15min rule. Correction structures are almost impossible to predict, so there is still a possibility of a bounce to the 20dSMA or a little higher. Leading indicators and Philly Fed at 10AM are expected to move in the positive direction which obviously sets up as a rally point or downside continuation. The System will issue a SELL signal if hourly downtrend confirmation is made. I will not be able to post much if any later this morning. Good luck.
(Update Aug 18 3:45 PM EST):
Nasdaq, Russell and Wilshire all broke yesterday's high while SPX and INDU narrowly failed. My experimental S2EW dynamic RSI says 1086-->1100 finished a structure but unfortunately it doesn't say whether it's 3 waves or 5 waves in this case. So, it does mean the high could be in, but given the lack of clarity on 3 or 5 waves plus the 2 options below and new highs in other indexes, I am no more certain what pattern is at play. 1086 support is still key for now. Initial claims could be a catalyst tomorrow but OPEX may keep things in check so we we'll have to let things come to us. US Dollar seems to be holding at key support for now. It might make a head fake lower, but I believe it needs to bounce for my favored S2EW count to increase in odds so it's something to watch. BKX and XLF look weak and they need to stay below key moving averages for my preferred scenario to occur as well. Good luck.
(Update Aug 18 1:15 PM EST):
1086 held. 1100 is being retested. There is a good chance it breaks but the count is unclear. The 1069-->1100 bounce looks like 3 waves to me which could be an ABC, but RSI narrowly did not confirm today's 1086 low as a new structure so that could have been wave 4 from 1069. The drop from 1100 looks like 3 waves to me as well.
So, we either have...
Option #1: 1069-->1100=ABC, 1100-->1086=X with Y=W at 1086-->1117 and Y=W*.62 at 1104 and Y=W*.5 at 1101. A 62% retrace of 1129-->1069 is 1107 so we have a common range of 1101-1117 for this option and the 20dSMA, 200dSMA and other resistances lie in that range. A variation on this would be a continuation of X below 1086 but I think that loses key support so I doubt it.
or
Option #2: 1069-->1081=w1,1081/1083-->1075=w2, 1075-->1100=w3, 1100-->1086=w4 and 1086-->1102-1106=w5 ending a wave A or 1.
My higher level count works better with Option #1, so that's the one I naturally prefer until proven otherwise. That could take until OPEX potentially but can end Wed/Thu. Option #1 should drop below 1086 in the next few days. Option #2 should find support at 1090ish or higher again.
(Update Aug 18 11:15 AM EST):
OK. Now we have a potential ABC or 121 from the 1085.76 low this morning (may need one more pop to fill the gap). If it's an ABC, it is large enough to be a wave 2, but S2EW did not confirm that 1085.76 ended a wave structure yet so it could still be a wave 4 from 1100. In any case, if 1085.76 breaks at this point, the odds are good the big down move has started with a potential retrace wave 2 up to 1090 or so. If it's a 121, then SPX 1100 should be surpassed today or early tomorrow and my 1105-1110ish target from 1069 will be in play.
(Update Aug 18 10:30AM EST):
It also looks to me like a breach of 1086 could make 5 waves down from 1100 with positive divergence which means the System could enter short just before a 10pt rally in its face, but you've seen the System usually knows best and it could very well end up being a weak 1-2-1-2 and the reward potential down to 1030-1050 initially is great even if the drawdown is 1%, so we'll just have to enter and hold our breath with a 4-hourly candle stop (would be maximum 1098). You can choose to scale in 1/2 or 1/3 initially if you want and add more on a bounce. Of course, if the 1085.91 support holds by rule, all bets are off.
(Update Aug 18 10:00AM EST):
If you entered a short trade at 1090ish based on my previous post, I would keep a tight leash on that or sell it now near breakeven (SPX is at 1089-1090 as I type), because even my bearish scenario would allow another zigzag to 1105-1110 or so and one of our posters, jch, caught me bending the System rules a bit (accidentally) and hourly support should have actually been 1086 which is also where the hourly BB20 is. So a break of that level would likely be the real break. I am not initiating an official System trade yet.
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This is not a System post. I was going through the charts from March 2009 again applying my RSI-based S2EW methodology, and things started to come together in my mind. So, I annotated a couple charts for your viewing pleasure summarizing my thoughts.
First, I believe March 2009 to April 2010 was corrective and most likely an ABC 62% Fib retrace.
Second, I believe the action since SPX 1041 in May (the first bottom after the flash crash) has been corrective and most likely an ABC/WXY with flats and an ending wedge.
Third, my count is not very supportive of a move above 1130 although it would support a test of 1105-1110+ into OPEX or an immediate drop.
Fourth, based on the above count, typical Fibs, my belief that the economic fundamentals will be bad for years, my multi-century count which says INDU/SPX are in a wave 4 that started in 2007 (not a wave 2 like 1932 with 80%+ retrace and lower yearly RSI) and the likelihood sentiment will get negative faster with each swoon, I believe SPX from October 2007 will either form an ABCXABC wedge or ABC with a long B-wave triangle ultimately falling to 550-650 in 2012+ in either scenario.
Fifth, SPX will likely form an ABC down to 880ish or 950ish from April 2010 to October 2010 in either the wedge or B-wave triangle scenario. Price-wise, the 50% & 62% retraces of 667 are at 880ish and 950ish, plus C=A and C=A*1.38 are at those levels and 869-956 was the summer 2009 correction at those same levels. Time-wise, Nov-May is seasonally good, and Q4 in the 2nd year of a presidency thru the 3rd year is also a good period and Oct/Nov is very common for a bottom. 2011 will likely be choppy and a consolidation year with 2012 being disastrous into the elections. That would make the entire bear market 2007-->2012=5 years which is about 60% of the time of corresponding wave 2 from 1966 to 1974. And, just like 1982 broke out of a 24 year trading range (1958-1982), I suspect 2020ish will be the breakout above the trading range since 1995ish.
Sixth, the vertical red dashed lines on the chart are when TRIN reached near 4 or higher. Most cases led to a significant bounce within 2-3 days. The vertical blue lines are possible cycle periods at play since May. The black dashed lines into October 2007 are my crude price projections using the above analysis.
Good luck.
Hi S2, do you mind pointing out what were you looking for in terms of RSU when you said: "but RSI narrowly did not confirm today's 1086 low as a new structure so that could have been wave 4 from 1069" Thanks
ReplyDeleteS2 looks we are in sideways or zig zag for one or two more days
ReplyDeleteMario, OPEX does that often.
ReplyDeletejch, it's mostly in the S2EW rules section. wave 4 RSI should not drop below wave 2 RSI except in some diagonal/sideways triangles. However, I did add my dynamic RSI a couple weeks ago that I posted about and I haven't updated the S2EW rules. If you are trying to count a wave structure, you want to take the number of candles divided by about 7.5 to use as your RSI parameter. Ideally, you use a timeframe (5min, 15min, 60min, daily etc) that gives you an RSI period of 10-30 although a little more or less is OK. Sometimes, 2 timeframes can be used to compare counts. Another trick is if you want to know if 3 waves are an ABC or 123, you have to use 1 RSI period for the ABC time span and another RSI period for the 123 since you have to project the 123 as a 12345 and use that candle quantity divided by 7.5. I'll try to write it all up soon but it is experimental.