Mon 4/11/11. Pause that refreshes...temporarily.

(Update Fri 4/15/11 8:15PM EST)
It figures that the stock market would move according to my projections during 3 weeks I wasn't trading. SPX tested the February high as the 2 closes above 1308 (the 61.8% retrace) foretold, then fell back to 1295-1305 and then ended at the max pain 1320 level on April OPEX. Check, check, check. So, what next? Well, I see a lot of people labeling 1339-->1302 as a 5-wave structure based on traditional EW. However, S2EW with Dynamic RSI suggests the drop was a double zigzag which coincidentally conforms best with the wave overlap in the Dow and the 40%+ retrace. I do expect several days of sideways-to-down action over the next few days, because that's what SPX typically does when VIX hits its lower BB20. However, I think it will look like 1-2-1-2-1-2 action before a blastoff into the cycle end on March 9+/- to 1400ish followed by a week of wave 4 weakness and then a final weaker surge into late May or early June to 1425-1450. A triple zigzag below 1302 is possible especially if bears can manage a solid red day on Monday, but I consider that less likely with probable gains into early Tuesday followed by 1 or 2 backtests of the 20dSMA to setup a coil. I'll post again if 1302 is submarined to tell you what Dynamic RSI and the System are saying. For now, the System is long with support at 1314. Looking way ahead, I expect SPX to test 1000ish by end of year. Using FIBBEWIE estimates down from 1425-1450 in May/June, SPX should test 1220-1280 in July/August before making a 50%+ wave 2 retrace. Good luck and good weekend.
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Since it's April 11th, I'll give you the 411. 2 weekends ago, my 17-year old car crapped out on a major road while my wife was driving it. Luckily, she escaped without injury, but it could have been much worse with the broken strut and cracked axle among several other things. After I hurried there to help her and dodged traffic to get the car off the road, I spent the next week dealing with tow trucks, a repair shop and its district manager, a salvage yard (I determined the repair amount was not worth it), various car dealers, insurance, the bank and all the activities of my 4 kids and wife with only 1 car. Last week, I had to go out of town on business and catch up on a lot of to-dos at home and work. Now, it's tax time. Joy.

As I last forewarned, the System confirmed a new uptrend on the second close above 1308. A retrace to the 1290s seemed likely but 1305 was all we got. I was forced to exit my short position on the subsequent hourly uptrend at a 2%+ loss. Ouch. Catching most of the previous downtrend made it less painful, but painful nonetheless and the lesson there was that I entered without an hourly downtrend confirmation (using candle rules) which was compounded by what I knew was a possible bottom within the cycle completion window.

I have a few important things to point out. First, the rate of falling consumer discretionary spending did break the 2008 and 2010 lows on a monthly basis and weekly basis at the end of March. That pivot break makes a 3-5% SPX drop likely between late April and mid-May. That also doubly confirmes the new pivot high that was formed at the end of November 2010 thereby portending a large drop of 9%+ starting 5-6 months later in May or possibly early June. Second, West Texas crude oil has sustained above $80 which has led to recessions shortly after the last 2 times that occurred. Third, QE2 is scheduled to end in June with some frontrunning very possible, and QE3 seems unlikely until people freak out about the stock market or economy again. Fourth, the next SPX cycle is scheduled to end on May 9th +/- 10 days. The next cycle bottom after that should occur around the end of June depending on where the current one ends. Fifth, Dynamic RSI suggests that the rally from 1249 to 1340 is a complete structure. The drop from 1340 to 1323 is an 18% retrace which is sometimes sufficient for a B-wave but rarely for a wave 2. Sixth, the current daily trend is neutral due to a 3-candle breakdown, and the current hourly trend is down (1334 resistance which can fall with price of course based on candles).

Putting that all together, SPX is likely to make new highs into May or even early June. In late April or early May, there should be a 25-50pt pullback followed by a new high and then a real doozy of a drop starting in June. The current SPX pullback from 1340 is likely a wave 2 of some degree and thus should retrace around 40-60% to 1285-1305. There are OEW pivots at 1313, 1303 and 1291. The 2 most recent important pivots are at 1305 and 1284. The 38.2%, 50% and 62% retrace levels for 1344-->1249 are 1285, 1296 and 1305. The 20dSMA and 50dSMA are at 1309 and 1313 respectively. If SPX breaks 1334 today as the futures are indicating possible, then it is likely off to the races although 1340-1344 would give one last battleground, but I think the odds favor a larger SPX pullback to pierce the 20dSMA back to 1295-1305 by Wednesday. Max pain is supposedly around 1320, so I suspect that will be a magnet area into OPEX Friday. Assuming SPX does not blast off this week, I believe the next few weeks should be good for bulls possibly reaching 1380-1400 by early May with a wave 4 pullback to end the current cycle followed by a final wave 5 to 1425-1450 into late May or early June.

Those are my thoughts based primarily on the technical landscape. I have been studying my new System further particularly trying to refine the entry/exit points using hourly charts. I am currently researching a strategy of going fully long in the first half of my 2-month momentum-price cycle when above the 20dSMA within an hourly uptrend, going fully short in the second half of the cycle when below the 20dSMA within an hourly downtrend and trading half-long and half-short based on the hourly trend under other conditions. I'm tweaking the exact criteria of the candles, reversal/bottom indicators and gaps. I don't expect to have anything substantial to report in that regard for at least a month, but, if the market does not follow the general projections I gave above, I'll probably post a new assessment. Good luck to you and your family.