Wed 4/27/11. Short-term top likely.

(Update Fri 4/29/11 5PM EST)
Hourly support bumped up to 1358.69. The closing hour came within one penny of bumping support up further to 1361.44. With a daily close at 1363.61, SPX is precariously sitting just above hourly support and daily support rises to 1344.25. Despite the higher close, TRIN rose a little above average but not overly-bearish at all, VIX bounced off its lower BB20 arguably forming another SPX sell signal in a 1-week span and ISEE fell sharply. All of those things show that people are getting a little cautious into the weekend after a steady SPX rise higher. That also tells me that the tide is turning in terms of people wanting to buy further into this rally, but at the same time it also tells me that a downturn won't catch enough people by surprise to turn into anything huge. So, my 2 main scenarios stand. (1) SPX rises through 1370 and makes wave 4s into May 9th with small 1-2% drops and (2) SPX pulls back from OEW 1363ish for about 1 week with another bottom signal around May 9th. Scenario 2 is more likely to allow SPX to find new highs in June while Scenario 1 is more likely to end in May, but there are various pattern possibilities for Scenario 2, so we'd have to see what the situation is at the next bottom. The System trend remains up, and there is no confirmation of a short-term top, but the indicators certainly still suggest one is very likely. Today, NYAD once again made a small change and RSI divergences built up, so SPX likely needs a large gap up to gain the steam it needs for Scenario 1. We'll see on Monday. Have a good weekend and good luck!

(Update Fri 4/29/11 11AM EST)
The trend remains up despite my call for a likely imminent short-term top. Most technicals remain the same as my Wednesday analysis (VIX, RSI divergences, DRSI, OEW 1363 etc). Some technicals are working off short-term overbought conditions. Until System support levels are broken, it's possible this is yet another consolidation prior to a 1-2 day ramp. However, System support is not far below current levels making for a nice tight stop for bulls and a potentially good risk/reward short for bears. Hourly support has risen to 1356.40 and has only been broken once in 2 weeks since the 1294.70 bottom when the System recommended exiting at 1335 and re-entering at 1340. Daily support has risen to 1336.75. Those support levels will rise if SPX closes any higher today. Going back to August 2010, the first trading day of each month has been bullish with some big up days and one big red exception in March 2011, and, going back to 2009, the beginning of each month has very often served as a turning point. As I stated previously, if SPX ramps through 1370, the May 9th cycle low will probably just be a set of wave 4s whereas a downturn from here leaves open the possibility for either a stronger wave 3 up into late May/June OR various forms of triangular action including an EDT into late May/June depending on how the next drop behaves. We should either exceed 1370 or break support in the next day or two, so we'll have our answer shortly. Good luck.
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The trend remains up. Hourly support is at 1345. Daily support is at 1331. There are 8 trading days to the projected cycle end date of May9th, but a low is allowed any time in the current cycle window.

I am expecting a downtrend to begin on Thursday for numerous reasons even if GDP/claims leads to a little more upside first.
1. Dynamic RSI: Due to the short time-frame from 1294, I was using Dynamic RSI 15min the last couple days which was giving conflicting, potentially triangular signals as I mentioned, but 60min RSI7 is reasonable to use now for Dynamic RSI given the 8-day rally, and it perfectly supports a 5-wave move from 1294 with w5=w3 right now. Dynamic RSI is not confirming a top has broken down yet, but it supports a 5-wave structure completion any hour.
2. NYAD: small change near a bullish extreme. This one is not as ideal at as much of a bullish extreme as I'd like, but it still generally works to mark short-term tops and sometimes something bigger.
3. RSI divergences: building from 1227 and 1344 using various daily RSI periods and building on hourly time-frames too, so we are not likely in a wave 3...yet.
4. TICK: near a bullish extreme.
5. %BB10: 3 days out of 4 above 0.9 which has heavy odds for a 1-2% pullback or at least a sideways grind
6. VIX: Buy signal a couple days on lBB20 crossover now with positive divergence which is generally bearish for SPX
7. OEW: next important 1363 pivot area has been entered suggesting short-term resistance is likely
8. Price-volume: Breakout from congestion and daily pivots around 1340 likely needs to be back-tested.
9. Fed/GDP/Claims: These news events are perfect excuses for short-term turning points
10. System Cycle: A cycle low is expected around May 9th +/-.

None of these things can be relied upon by themselves very well, but together they represent a strong case for a pullback. My System suggested going long once 1335.13 was surpassed, but it was done on a gap open with a Fed meeting imminent and I couldn't stomach it. The same gap action happened last week at 1322 hourly resistance, so the market is determined to leave tentative bulls behind. SPX has risen about 63pts from 1295. Whether or not it rises another half percent or so, a normal wave 2 retrace as I'm expecting should retrace 40-60% around 1320-1335. The 20dSMA is at 1325 and rising with the 50dSMA at 1317.At a minimum, my expectation is for SPX to flirt with 1331 daily support and probably pierce the 20dSMA. Below 1320 opens up numerous other possibilities, mostly triangular.

On a more bearish note, the discretionary spending pivot breakdown at the end of March (lowest spending rate decrease since tracked before the last bear market) projects an 8-10%+ SPX drop starting after 4-7 weeks and lasting 3-4+ weeks as seen on 12 of 17 occasions since 2007 including the 944, 1150 and 1129 tops. On 3 of 17 occasions, that same condition produced 3-4 range-bound weeks after 4-7 weeks, on 1 occasion dragged out to 9 weeks before turning hard and on 1 occasion turned only 5.5% after 7 weeks. SPX is in week 4 from April 1st, so a serious top could occur any time in the next 3 weeks or so. Subtracting 8-10% from the current 1360ish level produces a target of 1220-1240 or lower. That seems highly unlikely if SPX plans to make a late May or June top as projected by my Consumer Discretionary Spending analysis and cycle work plus T-Theory, Martin Armstrong, $80+ oil's historical recessionary impact and other things. So, with QE2 in its final throes, I'd have to guess we're going to see something like we saw in 5 of the 17 spending pivot breaks since 2007. That means, SPX will either gun it hard to the upside for another 3-5 weeks before collapsing (something like a mirror image of the 667 bottom) OR SPX will trade sideways in a 2-4% range for several weeks OR SPX will trade down about 5-6% for a few weeks. Sideways action for a few weeks would fit some sort of ascending triangle 4 or EDT or 3-3-5 flat or continued 1-2-1-2 nesting before a final surge into late May or June. I favor mostly sideways action with 2-4% downside, but, if the dollar cannot find some footing in the next couple days for a 1-2 week bounce, then a non-stop rally to 1400-1450 seems very plausible.

Given that analysis, I am going to look for a 2-4 day short entry in the next day and then re-evaluate the above scenarios after that. If SPX breaks through 1370 on Thursday's news, I'd lean towards the very bullish short-term scenario with only minor 1-2% pullbacks for the next few weeks. Good luck.