Mon 5/9/11. What could extend the cycle bottom.

(Update Tues 5/10/11 10:35AM EST)
SPX 1354.36 and 61.8% retrace broken. Long-only mode activated until cycle topping indicators come into play. Final short-term 10pt pullback expected before 1370-1404 is reached. I personally exited most of my long position just below 1355 and I plan to re-enter long at 1344-1348 but the System is in long mode with hourly support at 1345.85. Good luck.

(Update Tues 5/10/11 10:15AM EST)
SPX is bumping into its upper hourly BB20 after bouncing around the lower band for days. I suspect SPX will rise a little bit further to break the 61.8% retrace level and the previous 1354.36 high. Of course, that would greatly increase the odds of new highs, but the uBB20 setup along with VIX testing its 20dSMA from above and other s/t daily topping signals indicates that SPX should have a 5-10pt pullback at a minimum starting today and probably ending Wed/Thu. Dynamic RSI currently supports the rally from 1335.58 as 5 waves, so we could make a wave 2 correction of 1336-->1356ish which would target 1343-1349 with 1344 seemingly a magnet area. If the EDT is playing out and we get that pullback, it should be followed by the heart of a wave 3/C testing 1371. Staying long. Good luck.
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Despite the downtrend lasting only 4 days, my System identified SPX 1329 on 5/5/11 as a likely cycle bottom (with possible brief lower low on the initial claims news that did not transpire), because we had a preponderance of bottom signals near the May 9th projection bottom. I entered a long position at 1339 after the first confirmation of that bottom on Friday. Full confirmation will occur when SPX exceeds a 61.8% retrace of the top at 1354.76. Friday's high came within 40 cents of that. It was definitely recognized as an important level. System bottom calls are by no means 100% accurate, but we have 2 indicators that usually warn us when a call is wrong. (1) my top indicators appear within the first 2 days of a rally (or 3 days under limited circumstances) and (2) hourly candle support is broken.

Today, I only see one topping indicator thus far, but it's probably my strongest one: a small NYAD change near a bullish extreme after a 2 day rally off a bottom. That combined with TRIN being weaker than normal at the 1329 bottom definitely opens up the possibility of a lower low. I suppose we could have a doji/flat day on Tuesday before the market makes a decision, but a new low is very possible until SPX exceeds 1354. So, for a day or two, I am switching to a long/short mode where each 4-candle hourly break will offer an entry&exit point. I will exit my long if SPX trades back to 1340 and likely go short at that level unless it occurs near end of day with bottom indications. Otherwise, I will ride my long back above 1354 and enter long-only mode until SPX shows signs of a top. I am going to take profit on 25% or so of my position before the close too to buffer any large gap down.

If SPX 1329 holds, my EDT scenario stands as the primary scenario with a top in 1-3 weeks (possibly as early as May 13th/16th) at 1370-1404. A small percentage of cycles do top that quickly, but, most do not, so I'd favor something even more bullish to 1425-1450+  if the rally were to exceed 1404. And, the next projected cycle bottom will be June 28th +/- if 1329 sticks as the bottom. If SPX 1329 does not hold, I'd favor a triangle or irregular flat wave 4 scenario which would likely drag out a top until mid-June, but I'd also consider the possibility that THE top is in.

I updated my consumer discretionary spending-induced chart below. The 2 longest spending-projected SPX rallies since 2007 have lasted 23 weeks. QE1 and QE2 had something to do with those as well as the current rally which is currently 22 weeks and will reach 23 weeks if 1371 is reached by this Friday. Possibly, the rally could extend to 24-25 weeks, but you can see this analysis fits the EDT scenario well: a 1-3 week rally and then 8%+ collapse in 4-6 weeks. This projected top happens to coincide with the projection of a minor spending pivot breakdown which makes it potentially more significant. If the horrendous spending low in March (see the History link at http://www.consumerindexes.com) ends up being a significant pivot low (which is dubious right now with bad May numbers thus far), then the next significant SPX low should occur in Aug/Sep. But, before then, we have an intersection between the various SPX pivots as 1219-1249 and the entire bull market uptrend line in June. So, my educated guess at this point is that SPX will test 1220-1250 before the end of June and then finish a right shoulder into Aug/Sep possibly solidifying the neck line around 1220-1250 at the 1011-->1040 uptrend line before breaking down in late 2011 or early 2012. That's what the puzzle pieces look like to me anyway with the current information. Good luck.