Sun 5/22/11. Cycle bottom update.

(Update Thu 5/26/11 3:55PM EST)
Forgot to mention that daily stoch fell below 30, then rallied above 30 and then fell below 30 again. I have mentioned before that one drop below daily stoch 30 usually leads to another one within 4-5 weeks. This time it occurred within a week or so. Now, the odds are not as high that SPX will fall below stoch 30 again within the next month which once again supports a rally into mid-June or longer. A lot depends on the next couple days though. I believe SPX will visit 1295 and probably 1249 if it makes a new low at this point.

The small NYADV change at bullish extreme still remains despite the small SPX pullback into the close, but the 4pt 30% retrace relieves things a bit and could even satisfy a nested wave 2. So, just about any Friday opening is possible...further wave 2 weakness/flatness or a wave 3 up.

(Update Thu 5/26/11 2PM EST)
System hourly support has risen to 1314.41. If the 4PM hour closes higher than any other intraday hourly close, that support will rise to 1318.05 which is essentially break-even in terms of what I label wins, losses and draws. Upon entering a long trade at a likely bottom, I give a little more room for a stop by design based on my historical studies (you can probably recall seeing a lot of double/triple bottoms, slight piercings just to trigger stops and deep wave 2 retracements), so I use a rounded 0.25% stop below the likely cycle low until SPX gets 6+ hours beyond the low at which point I use 5-6 candle hourly support and then I switch to standard 4-candle hourly support once a new intraday hourly closing high is set after that. SPX just did that at 1PM so we are now using standard 4-candle support as our stop. That strategy basically involves starting with a looser stop and then tightening it once the trend establishes itself better and it doesn't always work, but it captures 80% of the historical scenarios at bottoms which is as good as we can really hope for. If SPX makes a new hourly closing high at 10AM tomorrow, the System stop will rise to 1323 which is 4pts above our entry thus assuring a profitable trade barring a large gap down.

I saw a chart today about Investors Intelligence reaching a 20+ year bearish sentiment extreme, and the AAII survey is extremely bearish at levels seen in February and Summer 2010 (more bearish than the March 2011 SPX 1249 and November 2010 SPX 1173 bottoms). ISEE put/call has generally been bearish recently. A majority of traders seem to have jumped on the commodity-bashing and dollar-loving bandwagon. While I think they are right intermediate-term, it would not surprise me to see the market shake the majority out. It's amazing this has all happened only 4% from a stock market top. I do not base my trading on that but it certainly adds a little confidence to a cycle bottom and a projection for a June top. I may be forced to change that projection as early as the next couple trading days based on my System technicals, but the case will be strengthened if SPX can rally above 1328-1330 and then solidified above 1348 (I expect 1340-1342ish resistance in between).


Right now, NYADV is indicating a small change near a bullish extreme which is often bearish for SPX...unless SPX can push well above 1330 today thereby probably making the NYAD change not so small. However, no other daily indicators of mine are supporting the bearish NYAD signal, and I generally require 3 of my topping indicators and 4+ of my bottoming indicators to trade around potential tops and bottoms. But, the day is not done yet. Ultimately, I'm expecting SPX to rally hard sometime between now and Tuesday to 1340ish and then backtest 1325-1330 before going to new highs, consolidating into June 8-9 and then topping June 13 +/-, but I'll use the System as my guide regardless of how the story unfolds. Good luck.

P.S. I need to revise my topping indicator discussion above. The 10dSMA and 50dSMA are at 1328-1330 and I use those as s/r including tops/bottoms. Plus, I mentioned the downtrend line and inverted H&S neck line which are in the same 1328-1330 area. So, I do give that area very strong weight as s/r. If NYAD maintains a small change at bullish extreme and SPX remains below 1330, I'd say the odds favor an SPX pullback, but if that pullback occurs before end of day or if SPX closes above 1330, the odds increase for a Friday continuation rally me thinks.

(Update Thu 5/26/11 11:40AM EST)
The downtrend line I mentioned yesterday was touched twice today at 1314. It finishes around 1311.80 at  end of day. If SPX does not break the 1311.80 low but decides to trade down near 1312 at the close, I will likely exit my long position, because a wave 3 gap down is possible with 1295 and 1249 the targets. I assume others will have the same mentality and may even anticipate it, so bears will have a great opportunity if they can keep SPX around 1315-1316 into the last hour. On the bullish side, the trend line has held and there is a potential inverse H&S formation with projection to 1340 or so. The potential neck line breakout level, the 1347-->1345-->1342 downtrend line from last week and the 50dSMA all reside around 1328 late Thursday into early Friday, so bulls should get momentum into the generally bullish holiday week if they can break 1328ish. If my daily indicators suggest any trading edge, I'll try to update again before end of day. I'll probably make a brand new post with deeper analysis over the long weekend. Good luck.

(Update Thu 5/26/11 9:33AM EST)
SPX has fallen in a straight line for nearly a full trading hour since the 1325.86 top at 3:12PM yesterday. Although Dynamic RSI supports the 1312-->1326 rally as 5 waves which would allow for a wave 2 retrace of 62% to 1317 +/- or even lower, but it's not easy to count the 1-hour drop as an ABC so, even in the bullish scenario, there may be a retest of whatever the after-open low ends up being. The key may be the US Dollar. It has dropped fairly sizably without the typical inverse SPX reaction. There is often a lag, but a USD recovery today would support the case that SPX had it right. As of now, VIX is still hanging above its 20dSMA and NAZ and SPX are slightly outperforming. If USD does not recover today, I'd expect SPX to rally and VIX to drop below its 20dSMA which would give bulls a chance to confirm a new uptrend on Friday.

Although I'm favoring the bullish case for now based on my System analysis, that case is certainly wearing thin in terms of time and price, and I have to be prepared in case 1312 is broken. I am moving my System and personal stop up to 1311.79 (rather than the previous .25% allowance that worked) now that the pivot low support is 5-6 hourly candles below which is used at likely bottoms. If stopped out, I may reenter long if the price bottom is broken without making a new momentum bottom and a reversal upward occurs. However, assuming a new price and momentum bottom is made, the System will enter short mode and wait for an hourly candle entry on the subsequent bounce. And, I would consider counting 1295 as the previous cycle end which would make June 9th +/- a potential bottom date (maybe extending to the converging June 13th +/- turn date). That SPX 1295 low occurred in the 2nd half of the cycle but not in the last 10 days. In my studies of cycles in 8+ years of charts, about 1 cycle per year does not end in the +/-10 day window...since a cycle end does not have to be the lowest cycle low, I'm basically saying that there is not a definable low in the cycle end window in occasional instances. Given that SPX has already fallen for nearly 4 weeks with most significant downtrends lasting 4-6 weeks, it would probably be reasonable to expect the current downtrend to end either now or in 2-3 weeks around June 9-13, but having an odd cycle will make the System decision-making slightly more difficult. Let's see what happens Thu/Fri. As I finish this, SPX has broken its intraday low to 1314, so we'll see soon if it's finishing a deep ABC down with ultimate bullish intentions. Not looking good. Bulls would need to exceed 1320.59 to increase that likelihood. The US Dollar has recovered some, but I suspect USD will confirm by rallying further if SPX is to break the low. I'm watching closely with stop in place. Good luck.

(Update Wed 5/25/11 2:30PM EST)
Bulls have gotten off the mat and thrown a good punch today, but the bears are not reeling yet. It will take another good punch or two to get over SPX 1330 (1329-1331 pivots and 1327 50dSMA) and below the VIX 20dSMA. The daily indicators are looking fairly neutral once again today which at least opens the door to the likely bullish scenario my System is projecting. If bulls do throw a good punch on Thursday, there will be a risk of several short-term topping indicators appearing which will be the bears opportunity to squash the rally, but we'd probably only see a partial retrace if SPX can get over 1330. Although I agree the economic news has been worsening and another big bad bear market is lurking, one cannot discount the possibility that SPX will make one more new high less than 4% above especially if a new cycle is starting. Technically, the momentum cycle low at 1312 today could hold with SPX forming an EDT to new price lows, but I think too much weight has been given to 1313ish for it to hold another time or two. So, I believe what happens at 1330 (any pullback should probably hold 1318) and then 1348 is critical to the next few weeks. Good luck.

(Update Wed 5/25/11 10:50AM EST)
First, I'd like to offer my condolences to the family and friends of Mark Haines. As much as the blogosphere (including me on a few occasions) likes to make fun of CNBC, Mark Haines stood out as a true reporter and truth-seeking interviewer with a great voice, good sense of humor and strong character. As I have entered middle age, things like this get to me more because my sense of invincibility has been gradually chipped away and my sense of family and life's moments has grown. Familiarity often breeds fondness and Mark Haines was a familiar part of my week. 

The downtrend line I spoke of yesterday (1359-->1331-->1323-->1320) is now at 1318.5-1319 and falling to 1316ish by end of day. Bulls need to penetrate that and make it support to reach the next trend line which crosses 1330ish on Thursday and happens to be an area (1329-1331) with a lot of recent intraday pivots. Today is the last chance for me to declare the cycle from SPX 1249 as being complete. Since my cycles are momentum based, the official low would be on May 24th which is 11 trading days beyond the projected cycle end date (May 9th +/- 10), although May 23rd was literally tenths away from being the low. IF SPX breaks below 1311.80 at this point, SPX likely completed a cycle bottom at either 1295 or 1329 and would likely drop lower for a couple more weeks. IF SPX made a cycle low at 1311.80 which is a higher low than 1249, the next cycle end date is projected to be Monday July 18th +/- which is basically around July OPEX. That would make the key June 13th date +/- a potential left-translated cycle top followed by a 4-5 week swoon. If SPX gives us several daily reversal indicators on Wed-Fri, then bears will have another shot to extend the downtrend and I will lighten up the System and personal long positions. Until then, the System and I remain long until 4-candle hourly support is broken (although 5-6 candles and/or .25% below bottoms are used at likely cycle bottoms like I specified yesterday for the stop at 1309). Good luck.

P.S. I don't want to get too far ahead of myself, but I think projections are appropriate at likely bottoms and tops. SPX is less than 4% from a new high, but it needs to exceed a 61.8% retrace (1348) to make new highs likely. IF IF IF SPX is still in an expanding EDT from 1249, EW rules state that wave 3 cannot be the shortest which means SPX cannot exceed1387.60. So, assuming a new cycle has started, we have a likely target range of 1370-1387. If that range is exceeded, then there are a lot of Fibs/targets at 1425-1450 that will need to be considered. VIX is approaching its 20dSMA now which may induce an SPX drop Thursday, but bears will likely be short covering hard if that is broken along with SPX 1330. Bears must take a stand there.

(Update Tue 5/24/11 5:20PM EST)
SPX daily reversal indicators are pretty neutral, so the bears did well to relieve the oversold conditions while price was treading water. ISEE was extremely bearish for a 2nd day in a row. It feels like there needs to be one more small flush to complete the cycle bottom, but it's hard to say. I see falling trend lines that are at 1310 and 1320 after the open, so we could see a breakdown or breakout around those levels. The System and I entered fully long at 1319 and will stop out at 1309. If stopped out, we will likely make one more attempt at an hourly long entry on Wed/Thu. Good luck.

(Update Tue 5/24/11 8:30AM EST)
The System and I went fully long at 1319.45. SPX could still make a lower low, but the technical conditions and sentiment have gotten better and better for a bottom with the 1329, 1319 and 1313 lows surrounding the projected cycle end date, and the odds are very good that 1309-1313 will hold. If so, for the next few weeks, the System will close its long position on any 4-candle hourly support break or strong reversal signals and re-open a long position on any 2-candle hourly resistance break. Bulls need to retake 1348 to nearly assure new highs. Bears need to break the OEW 1313 pivot area. Good luck.

(Update Mon 5/23/11 1:45PM EST)
My daily reversal indicators are still not as extreme as they were at the 1249 bottom, but they are more bearish than they were at the 1329 & 1319 lows and we have positive 60min RSI divergences. That combined with Mon/Tues closing the cycle bottom window puts the System in long mode, so a full long position will be opened on a 2-candle hourly resistance break which currently stands at 1319.44. The stop would be .25% below the 1312.88 low (so, 1309). Thus far, SPX failed to close the 1312.62 gap by pennies and the 1329, 1319 and 1313 lows make a near-perfect downtrend line with the parallel upside being in the low 1340s this week. Key juncture for bulls. Good luck.
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As previously posted, the System sold its profitable long position at 1336 on a Friday break of hourly candle support. Later Friday, SPX did not quite reach 1342.01 to trigger another long entry and of course the key 1351 level was never quite reached earlier in the week. To put it overly simply, the System looks for long entries when SPX is in a bullish configuration or bouncing from a potential cycle bottom. I personally gamed the System a few times last week and netted 4-5 extra points on top of System profits, but I kept more than a half long position from 1333 into the weekend which I will now pay for based on futures. The System is usually right AND safer.

The projected cycle end date was May 9th, but I have seen occasional cycles extend up to 10 days. So, I've been mentioning that Monday May 23rd is an outside cycle bottom date. A straddle bottom was very possible at SPX 1329/1319 but I mentioned the bottom indications were not as extreme as most bottoms. That was our warning to be cautious I guess. The System heeded it. I did not. Cycle work is not precise so I won't stubbornly force today to be the bottom. But, if the cycle from SPX 1249 is still bottoming, I'd expect the cycle to end Mon/Tues below 1319 with strong bottom indications and a smaller chance for a slightly lower low/reversal on Wednesday.

If the SPX cycle bottoms Mon/Tue, we should avoid a split momentum low (as 1329 and 1319 were) and the next cycle bottom would extend beyond July 4th to July OPEX (July 15th). That would better support the numerous technical systems that project an SPX top on June 13th-ish which should be a higher high. I detailed those projections previously but I'll add McLaren to the list. In late 2010, he predicted a distribution top in March to June, and he currently has a date range of June 14-23 using his 30/60/90/180 day cycle behavior and retracement studies of tops and bottoms. http://www.mclarenreport.net.au/articles/articles/251/1/May-04-2011-mclarenreport--free-report/Page1.html

I feel strange continuing to look for a bottom for the last 2 weeks when my personal bias has generally been bearish, but I am trying to follow my new System with cycle considerations. If SPX can make the 20dSMA and 50dSMA resistance beyond the next couple days without strong bottom indications or with topping indications on the next 2-3 day bounce, the System will look for short trades. For now, the technical situation makes it likely that SPX will imminently bottom (probably above or around the 1312.62 gap and OEW 1313 pivot), and then SPX would rally for 2-4 weeks to June 13 +/- followed by a plunge into July OPEX +/-.

If SPX does not confirm a bottom this week, it will likely break 1295 and possibly test 1249. My discretionary spending analysis favored an April/May top with an 8%+ drop, but I've been expecting QE2 to extend it to a May/June top. If a cycle does not bottom this week, that analysis gives me confidence to believe that 1371 was the top with a test of 1249 likely. Tony Caldaro has 2 bearish scenarios supporting a test of 1295 and 1249. If this happens, June 13th-ish may actually end up being a bottom and Tony's call for a bull market wave 3 could take place. We should know a lot more by next Monday. Good luck.