Sun 11/14/10. No Sell Confirmation yet.

(Intraday updates are at the bottom of the post)
System Notes:
Friday was a 20dSMA test day. Monday will be a Marker day. The high/low extreme of the Marker Day must be closed beyond to set the next trend OR any large gap prior to that will also set the trend. If the trend becomes down, there is currently a lot of support around 1160. If the trend becomes up, there is a lot of resistance at 1228-1240.

Opinion:
Daily and hourly dynamic RSI broke the lows seen at 1132, 1160 and 1172. Thus, S2EW concludes that 1227 was the end of the structure from 1040 OR was the beginning of a final EDT. In the latter scenario, SPX should not go much if any lower than Friday's 1194 low. In the former scenario, I'd expect an imminent strong wave 3 down since the action down from 1227 thus far has not been convincingly impulsive.

The US Dollar has followed the bullish scenario perfectly. The blue vertical line in the chart below denotes a pivot break without divergence. You'll notice the last 2 such indications produced 1-2 weeks of relief from the downtrend. In both cases, the downtrend did not resume until there was a higher high (or retest of a pivot high) WITH negative divergence. So, the odds favor that the USD will not make a new low for the next couple weeks and will have an opportunity to confirm a trend change after its next pullback and rally. USD has reached my 78-78.8 target zone with the 50dSMA and upper BB20 just above, so a pullback near the 20dSMA is likely to be underway now or by Mon/Tues.

Last week's VIX rally was halted by its upper wedge boundary just after breaking above the 20dSMA Friday. Typically, VIX would pullback from this spot. If VIX breaks through, I suspect it will meet resistance around 23 before backtesting the wedge and 20dSMA. If VIX breaks back below its 20dSMA, I suspect it will make a new low near the 2006 uptrend line and above the lower wedge line.

Banks look to me like they are completing an ABCXAB from their August bottom. They pierced the 38.2% Fib retrace of the April high but fell back in the last week. There is a band of 5-10 price pivots from March that surround the 50% retrace level just above last week's high. The banks are right on support from the 10dSMA, 20dSMA and 50dSMA as well as a 50% pullback to recent lows. So, I suspect the banks will make one more rally with divergence. However, if banks can break below that support, it will likely turn into resistance.

Financials are a bit healthier than banks. And, they pierced the 50% retrace level from the April high on high volume. However, they missed filling an island gap down after the flash crash by 1 penny and they are now at support of the 20dSMA, 50dSMA and 200dSMA. So, I suspect financials will make one more rally possibly failing to make a new high. If financials can break through support which coincides with Sep/Oct consolidation, the odds favor a new 1-2 month downtrend has started.

Consumer discretionary spending topped out 24 weeks ago and 26-27 weeks is as long as any spending pivot has taken to start a 10-15%+ SPX turn. If Friday Nov 5 was not the top, the top should arrive within the next couple weeks. 2 of the resulting SPX downturns since 2007 lasted 4 weeks and ~10% while 3 of them lasted 8-9 weeks and 11-15%+.So, if SPX can drop hard early next week, we are probably in week 2 of a 4-week or 9-week downtrend whereas an SPX rally reversal Mon/Tues could extend the top and thus push the downtrend targets out a bit.

The SPX 3-year weekly chart below reveals a potential diamond pattern (or double H&S). And, you'll notice the 200wSMA served as support this past Friday and has served as s/r on at least 5 significant pivots since 2007. If SPX holds its 200wSMA and rallies above 1230, there is a bullish secondary option in the chart below projecting an 8-10% pullback backtesting the 200wSMA and upper diamond line, but SPX would likely need to surpass 1240 for that to happen. Currently, there is weekly RSI divergence although that's not required for a C/Y wave. That divergence is not likely to be broken by another SPX rise to 1230-1240. One more thing...at the bottom of the chart, you'll notice RUT has still not surpassed its April high as Dow, SPX and Nasdaq have. RUT is currently sitting slightly more than 3% below its April high. If RUT were to rally beyond its April high, that would likely equate to a slight new high of 1228-1240 in SPX. Based on the 200wSMA and RUT, one more SPX rally is very possible before topping.

The SPX 60min chart below shows that the uptrend line from August and the strong channel from September were both broken intraday. However, SPX closed just above the lower channel line. RSI, Stoch and MACD are all more oversold then they have been since August which could certainly allow a short-term pop, but they signify a trend change has occurred or will occur after the next high with negative divergence.

Overall, the evidence suggests SPX is topping, but we will likely see another top or two (EDT legs 3 and 5) into OPEX +/- if SPX does not drop hard Mon/Tues. I see a lot of blogs giving sell signals and Elliotticians expecting a wave 4 pullback to 1160-1180. Terry Laundry's theory suggests a top is in now that Nov 12th has passed with his volume oscillator dropping well below 0, but he allows for a 50% retrace rally possibly starting this week at some point and his theory is not really intended to be precise to the day on price, so a slight new high on weak volume and breadth is possible. Martin Armstrong was calling for a trend turn at end of August into Oct/Nov with a key turning point (likely a low) in June 2011. The McLaren Report suggests this pullback is different with 22-30 calendar days of weakness into Nov 29 or a week beyond. However, all the sell signals will likely be a little premature if SPX does not drop hard Mon/Tues and instead makes 1205 support.

My System came within pennies of making a new Sell signal at 1218ish with the 20dSMA as target, but it now sits officially in a neutral stance with various SPX support near Friday's low. With T Theory projecting a null echo mid-December low and eventually a larger low in June 2011 +/- AND with the discretionary spending analysis projecting an imminent 4-week or 8-9 week downtrend AND with McLaren looking for a 22-30 day downtrend AND with lots of lame duck uncertainty about taxes, health care, deficit cuts, the new Congress, PIIGS, currency wars, an employment lapse after the holidays, a foreclosure ramp and GDP AND with AAII at nearly a 4-year bullish extreme along with record insider selling AND with Martin Armstrong calling for an Oct/Nov top with June 2011 likely being a significant low, it is difficult to imagine an SPX rally extending into December and it is likely SPX is heading down into summer 2011. In my opinion, everything would align for a barn-burner of a 4-week 10%+ drop into mid-to-late December if SPX could rally to 1228-1240 in the next 3-7 trading days with VIX setting a new low, USD consolidating, RUT breaking its April high and the financials and banks failing at overhead resistance. However, I don't think I'll get that alignment if SPX drops impuslively on Monday or Tuesday below 1194 and through the 1180-1190 congestion area. This analysis took me many hours to put together and I hope you benefit from it in some way. Good luck.

P.S. I am seeing more news about Democrat and Republican leaders willing to compromise on tax cuts. I believe Congress is back in session this week and then we'll probably see a lightly traded Thanksgiving week, so there is a real possibility of positive tax cut talk supporting a rally as far as Thanksgiving. McLaren has a potential Nov 29 turn date, and that is the Monday after Thanksgiving. The last 2 days of the month have also tended to be negative, so Nov 29 is as far as I think all my indicators would allow a topping formation to go before going back to the drawing board. Assuming an EDT takes shape, the drop from 1227 took 5 days, so the remaining legs could definitely take 9-10 trading days up to Nov 29. However, I'd be more inclined to think Nov 29 could turn out to be the last wave 2 bounce before the downtrend accelerates down. And, there is an argument to be made for an expanding EDT in which SPX overlapped the 1196 level achieved on Oct 25th. That would mean only one more new high is needed above 1227 probably by the end of this week. If that situation presents itself, I will probably begin a non-System short above 1227 with 10-20% profit-taking on a 1-2% pullback knowing that there will either be a wave 2 or possible contracting EDT 5th leg higher for me to reload and avoid much drawdown. Otherwise, I will wait for a System sell signal or backtest of breakdown levels.

(Update Mon 11/15/10 10:45 AM EST)
This morning, SPX butted its head against the uptrend line from 667 that was broken on Friday. SPX closed just below that line and just above the lower boundary of the Sep/Oct/Nov channel last week. SPX is also above its hourly 89SMA and just below its hourly 20SMA. VIX is approaching a backtest of its 20dSMA. If SPX can break above those mild resistances, it will likely fulfill the bullish scenario I painted into OPEX +/-. Support lies at 1196-1198. I've got a suspicion SPX will position itself near a breakout or breakdown at end of day and then gap accordingly tomorrow. The chart below shows the trend lines and moving averages I am talking about.

(Update Mon 11/15/10 9:45PM EST)
Here's what I said mid-morning: "Support lies at 1196-1198. I've got a suspicion SPX will position itself near a breakout or breakdown at end of day and then gap accordingly tomorrow." My suspicion is obviously a gap down from 1197 to break support. Today, SPX could not break back through the uptrend line from 667 or the downtrend line from 1227, and that certainly looks bearish.

However, today was a Marker Day in the System, which means a new trend is not officially confirmed until today's range extreme of 1197-1207 is closed beyond OR until a gap occurs > .5%. We may very well get both with a gap down tomorrow. Futures are currently -5 but could change greatly with any new Ireland news, so we'll see how things are after Europe opens and prior to the US market open at 9:15 AM. As I stated over the weekend, Dynamic RSI has confirmed that either the structure from 1040 is done or requires another slight high or two to finish an EDT. Technically, the EDT is not eliminated until sub-1183 or arguably lower, but I don't think the EDT scenario would survive a close below 1197. Good luck.

(Update Tues 11/16/10 10:00AM EST)
SPX gapped down 3 points, but the System looks at the SPY for gaps and SPY gapped down 0.495%. Technically, that is not > .5% so the System will not issue a sell signal unless SPX can close below the Marker Day 1197 low. And, even a sell signal would not eliminate the possibility of a retrace as far as hourly resistance at 1207ish currently. OEW has an 1187 pivot and the 200wSMA is at 1190 for support, but SPX has broken 2 uptrend lines and the 20dSMA, so any bounce must clear those levels mentioned. It is very common for SPX to get choppy around the 20dSMA for a few days, the EDT scenario is not eliminated, the USD is likely to retrace back towards its 20dSMA, VIX has merely pierced its upper wedge line by pennies and there is no obvious impulsive structure down from 1227 quite yet, so bears really need one more decent push down IMHO. You know I am intermediate-term bearish with all the evidence from my weekend post and I expect the drop to be 10-15%+, but I am just trying to read the tea leaves to nail the top whether that's 1227 on Nov 5th or a little higher before end of month and System rules are doing the same in their own way.

(Update Tues 11/16/10 11:30AM EST)
Looks like SPX did get the big push down that bears needed forming what could be a wave 3 from 1227. I suspect the OEW 1187 pivot and Friday's 1194 low will now become resistance and they need to for the impulsive count to remain probable. VIX has now decisively cleared its upper wedge boundary which may become support now. The FIBBEWIE impulse estimate is 1150-1165. It is likely a SELL signal will be issued by the System. Unfortunately, it narrowly missed issuing a SELL signal at 1192, so I will evaluate an entry point tonight once the closing value and daily indicators are known.

Oh, and I should add that IF SPX closes below 1197 (even below 1180) and IF SPX makes a large gap up Wednesday morning, the System will not issue a new SELL signal. I suppose that is a possible situation if the Europeans come to some stalling agreement tonight, but it could also go the other way if they don't. I just wanted to make you aware of that System consideration.

(Update Tues 11/16/10 2:45PM EST)
5min Dynamic RSI suggests the 1174-->1181 bounce made a perfect wave 4 from 107.43, so the slight new low to 1174 just a few minutes ago could have completed the structure from 1207 or 1 of 5. The question is does that complete an ABCXABC down from 1227 or does that complete a 1-2-1-2-1-2-3? Odds favor the latter bearish count, but 1194 would throw a wrench in the bear cause. I'll be watching 15min to 60min RSI, the US Dollar and VIX for clues. A typical wave 4 would retrace 20-40% which is 6-13 points currently targeting 1180-1188. So, the bearish case will take some serious jabs above 1188.