Sun 12/19/10. System still long from 1236. 5-10% Top imminent?

(Update Wed 12/22/10 4:00 PM EST)
Below, I included an updated look at my daily SPX projection chart. The time/price target box has now been reached. The 1131-->1227 uptrend line has been touched. The 6-week channel up to 1227 was backtested last week and nearly touched again this week. I consider those the 2 main upside resistance trend lines, and they lined up with the convergence of reasons for 1260ish resistance I went over recently which is why I placed the price/time box there. Obviously, the fact that those trend lines rise and that 1260ish is merely an area of resistance means SPX could go a little higher and still honor the technicals. And, there is one higher trend line (wave 1-3) that would allow 1290+ in January. Assuming a pullback occurs imminently from the current price/time resistance, my chart shows a series of 4 uptrend lines that will be encountered in this order.
1. the 1040-->1174 trend line crossing 1210-1220 into end of year.
2. the line from 1040 (wave 2) that is parallel to the wave 1-3 trend line crossing 1180-1200 in mid-January.
3. the 667-->1040 uptrend line crossing 1125-1165 from January 1st to March 1st.
4. the 1011-->11040 uptrend line crossing 1102 to 1132 from January 1st to March 1st.

I expect the 1st and 2nd line to be touched by mid-January. I expect the 3rd and possibly the 4th line to be touched in March. We all know 1227ish, 1200ish, 1174ish and 1130ish represent important pivot/breakout areas. We can all calculate Fib from 1011-->1260ish which gives you 1200ish, 1164ish and 1135ish for the 23.6%, 38.2% and 50% retraces respectively. There is obvious convergence near 1200, 1160 and 1130 between now and early March, so those are my expectations unless SPX burts much higher. The trend is still up until it ain't so these are just educated guesses for now.

(Update Wed 12/22/10 1:10 PM EST)
The System took final profits at 1258.76 after a potential hourly reversal bar only 1 pt from our target near a potential high and 1260-1261 convergence zone. Total profit on this trade was 1.3%. SPX has decided to attack the 1260-1261ish zone I thought would be reached on Tuesday, and now my small 5 of 5 of 5 EDT scenario is gone. However, a larger EDT is possible with another wave 4-5 to come. Dynamic RSI hit a high in concert with price at 1259 when counting from the 1232.85 low last week. That is on the 15-30min level which is less reliable, but it typically points to a wave 3 or C high. Using S2EW, one can count the preceding moves in the last week from 1232 as nested 1-2s or ABCs, so, assuming we top out Wed/Thu near 1260, we could fall back to 1250-1255 and then get a couple wave 4-5s to wrap things up in the 1260s to even 1290ish OR we could get the larger EDT 5th scenario if 1247 is overlapped followed by a final rally to 1260 or so. Although most indicators still point to an imminent SPX decline including the US dollar which is poised to begin a new multi-week rally (possibly after a couple more consolidation days), seasonality and QE2 on low volume are supporting the market, and, combined with the latest RSI high, it looks like SPX could easily grind higher for another 2-5+ days which obviously sets us up for the real damage to begin in early-to-mid January. The EDT scenario would likely end things by early next week, and RSI should tell me when the market is officially broken, but, as I've been saying for the last week or so, I don't expect anything mroe than a 2-3% pullback with a bounce by end of year. One thing that is nice about this rise to 1259 is that my preferred daily projection (rise to 1260ish in December, fall to 1200ish in January, sizable retrace/retest to February and fall to sub-1200 or even sub-1170 by March) has now been reaffirmed. Now, my secondary count becomes a continued grind higher to 1260-1290ish into early-to-mid January but that's not my preferred scenario and S2EW and the System should help us confirm when the uptrend is over. The System will not re-enter a long until hourly stoch resets and/or daily support is retested near 1241.51 (assuming S2EW hasn't confirmed the uptrend is over). The System could enter a temporary short if daily support is broken and exit near the 20dSMA. Good luck.

(Update Tues 12/21/10 11:40 AM EST)
I just went personally short at 1253.4 with stop just above 1261. SPX rose 3-8 pts in choppy fashion this morning which fits my Tuesday Turnaround scenario with EDT 5 of 5 from 1011, so I'm shorting as I said I would. I have been going on personal short-side fishing expeditions since the 1120s unlike my System unfortunately, and my recent record has been about 50/50 so take my latest short for what it's worth. My System is still 1/4 long with stop below 1246.70 hourly support by rule (that will rise to about 1250 if SPX makes a new high after 12PM). USD is hanging in there but lightly consolidating for a couple days as I proposed over the weekend. VIX has been slightly rising the last couple days against the SPX tide. Junk bonds and breadth are badly lagging the general stock market. Gold and oil look toppy. But, we have no confirmations yet. A Santa slow melt higher is a possibility but I prefer the 2-3% drop and retrace into end of year. Good luck.

(Update Tues 12/21/10 10:30 AM EST)
The System is going ahead and taking 1/4 profit at 1253 since we shouldn't quibble over 1 point near a potential large top and EDT. The System is still long 1/4 position from 1236.6.

(Update Mon 12/20/10 7:30 PM EST)
The System sold 1/2 of its long position at 1248. Hourly support is 1241.51. If SPX makes a new high Tuesday, I will issue a rising hard stop at 1246.69 just a penny below what would be hourly support to lock in a 1% gain and avoid an imminent downturn. The next 1/4 profit targets are 1254 and 1260.

By making a new high today, SPX made a 5-wave S2EW count from 1173 more plausible. However, the choppy grind upward during the last week has made RSI chop-suey which typically indicates an EDT. The same can be said for Dow except it did not make a new high as would have been ideal. If the rally was a series of 1-2s from 1232, SPX should have gapped up harder today and not fallen back so quickly. If SPX does not move up hard Tuesday morning, I think the wave 3 of 5 count from 1173 is pretty much dead, and thus any slight new SPX high (say 1250-1255) would likely indicate the completion of an EDT 5th wave from 1173 and thus the completion of 5 of 5 from 1011. SPX did reach the 1248 Fib and 1254 would be within the next OEW pivot force field, so we pretty target attainment even though we're not quite at 1260ish.

So, I guess I'm saying that a weak 3-8 pt up move in SPX tomorrow could be a multi-month top. It is common to see a trend turn a day or two after OPEX from anecdotal experience. USD, VIX, TRIN, ISEE and sentiment support such a turn, but seasonality will likely prevent a huge drop into end of year. I will likely go personally short under such a scenario with a stop a little above 1260. I'd expect SPX to bounce from 1228-1232ish to 1240+ before testing 1200ish. If SPX moves up fast in the morning, I am actually leaning toward an attack on 1280-1290 by end of year due to the potential 1-2-1-2-1-2 pattern since SPX 1232, so I'll probably sit back and avoid shorting a strong move above 1255. Good luck.
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My preferred projection is that SPX will top out this week near 1260 and fall to 1190-1210 by mid-January, bounce for 3-4 weeks and then fall to 1135-1165. My secondary projection is that SPX has already topped out at 1246 and will fall to 1200ish or 1130-1165 by mid-January, bounce for 3-4 weeks and then fall hard again. Both scenarios are looking for a mid-January low, an early-to-mid February high and a March low followed by a test or break of the highs. That is based largely on technical indications I follow for USD, discretionary spending, TRIN and AAII/ISEE/sentiment many of which I provided historical stats for in the past 1-2 weeks. If SPX does move towards 1260 this week, my secondary scenario will become a mostly sideways grind into early January with my target lows and highs pushed out a week or two, but, in any event, I am expecting a drop near 1200 in January and then a sub-1170 low in either January or March. Here is the SPX chart with S2EW count.

Earlier this week, to arrive at the ultimate 1130-1165 target zone, I analyzed Fibs, the 667 and 1011 uptrend lines, the larger 7%+ ISEE/TRIN/AAII drops, key OEW pivots at 1136, 1146 and 1161, key breakout areas at 1130 and 1150, the 200dSMA currently at 1141 and the S2EW count calling for a large pullback as part of an irregular flat 4 or B-wave correciton of 1011. Of course, there was also a Fib 23.6% retrace, breakout and 50dSMA at 1200ish, so that is a likely support level which must be broken by bears.

My USD count using S2EW can be found in the chart below. Basically, it calls for a double zigzag up from November 2010 into Feb/March 2011 followed by a new low in May-July 2011 and then a 1+ year impuslive wave testing 90-95 near the 2004/2005 highs, 200 month SMA and 38-50% retrace of 2001. This count supports a 2-3 month SPX pullback as I laid out above, and then it supports new SPX highs largely induced by QE2. And, it also supports a huge SPX drop from mid-2011 to late-2012. After that, I expect USD to collapse to new lows into 2016 and/or 2020 which should make gold a good investment. I do expect 2012 to be THE stock market low and I do expect a falling dollar to help stocks thereafter, but, I think the linkage will weaken as people slowly begin to think our economic recovery will take forever. It won't because the emerging economies will drag us along into 2035ish.

My corresponding SPX projection into 2012 is in the next chart. I expect SPX to reach 500-600 at its depths. A panic low to 300-450 is possible but unlikely as I'll explain in a second. 

Many months ago, I posted an RSI chart going back to the 1800s. I think my Dow data is questionable before 1900, so I focused my S2EW analysis on the rally since 1932. As you may recall, I propose that year 2000 was the heart of a wave 3 top, because, by any measure that I used (various RSI periods, inflation-adjusted, percentage-adjusted etc), year 2000 had the most extreme RSI high since my data started in the the 1830s. By S2EW rules, year 2000 must be a wave C or 3 top. By applying S2EW to weekly, monthly, quarterly and yearly time periods from 1932 to present, the following count emerges:

1932-->1966=w1

1966-->1974=w2

1974-->2000=w3of3

2000-->2003=w4of3

2003-->2007=w5of3

2007-->2012?=w4

2012?-->2035/2050?=w5 

So, by S2EW rules, the drop from 2007-2009 could have completed an ABC wave 4 from 1932, but it is highly unlikely because (1) an 18-month correction is likely insufficient for a 33-year rally from 1974 to 2007 and (2) the rally from March 2009 has been corrective thus far by the same S2EW rules. Thus, in line with demographic, debt, technology and energy cycles that are negativey converging, the stock market should drop further into 2012 at a minimum. However, S2EW tells us that the next low (wave 4 from 1933) should have a dynamic RSI higher than 1974/1975 (wave 2 from 1933). I tried various combinations of prices through 2016 including a near retest of the 2007 highs before falling, and the only way that Dow can break the March 2009 low while keeping RSI above its 1974 level is to have most of the damage occur in 1 year within the next 2-3 years and to recover back above the 2009 lows by the end of that year.

That fits my long-term SPX chart above with a mid-2011 top, mini-crash and bounce into end of 2011 that makes the year fairly flat and then a horrible 2012 that recovers with a 20%+ bounce by end of year. 2013 would need to be a VERY strong year (30%+ higher) to keep RSI from falling further. However, after that, SPX could bounce around +/-20% for a few years with RSI trending back up. Having 2011 be fairly flat also fits with the heavy bullish bias of Q4 during mid-term elections through the following year, and a bearish 2012 into presidential elections would be nothing new either, although the drop will be scary. Currently, real estate is heading for lows well into 2012 as foreclosures and legalities are stalled, the 99-week unemployment compensation will expire in 2012, the tax cuts will come back up for debate in 2012, the Fed and government will be seen as impotent at dealing with the financial crises if 2011 tax cuts and QE2/QE3 don't do the trick, the preseidential elections will cause uncertainty and negativity in 2012, and by 2012 we'll have to choose between lower deficits with a slower economy or huge deficits with incredible commodity inflation and higher interest rates neither of which will help Main Street or Wall Street. So, I can envision a horrific 2012 stock market for many reasons, technical, cyclical and fundamental.

Here is the yearly RSI13 chart using a projection of an 11500 Dow close for 2010, 11000 for 2011 and 8000 for 2012 (after a bounce from sub-6500). You can only play with those numbers a little to keep the 2012 RSI above the 1975 RSI.

I should add that I ran across some pretty nice free analysis at http://www.smartmoneytrackerpremium.net/Dec_68WO.php. Gary has a very similar view to mine through 2012, although he comes at it through cycles and different technicals than me. Gary made a great call at the August lows http://www.smartmoneytrackerpremium.net/Aug_28th_weekend_report.php. Gary seems to be calling for a larger drop than me into mid-to-late January. Unless SPX can get well above 1260, my plan is to stay short from 1260ish (or possibly 1230-1240 if 1232 breaks down this week first) into January 12th-20th, and if SPX drops as much as Gary thinks, all the better for me. Terry Laundry's T Theory made failed calls for a late August high and a mid-December null echo low, so he does not have a hot hand for sure. Martin Armstrong made a great call for a late August low and a rise into Oct/Nov, and he calls for a significant turning point in June 2011 in his economic confidence model which may prove to be a top. Parker is calling for Money Flow T tops into early February and Terry Laundry has one of his Ts ending in mid-February with both of them seeing potential for highs into May/June. I believe my independent analysis fits Gary's cycles even if we differ a little in price, and the various calls for a February top and June-ish top also fit my analysis. Of course, I'll make adjustments based on action into early January. Even though I expect an imminent top, I think SPX will hang in there pretty well into the first week of January which is another reason I like one more hop to 1260ish to buy time and price for SPX to close near current levels at end of year while beginning a drop.

I have a lot of Christmas preparations to make and vacation travel with family to do, so this will likely be my last extensive analysis until early January. I hope this post gave you some benefit, and I wish you and your family well.