(Update Fri 7/29/11 3:55PM EST)
Simple math, centuries of history, previous presidents, personal experience with credit cards and debt and plain common sense tell us that America has 3 choices regarding our debt.
1. Go cold turkey with massive pain now and blue skies in a few years.
2. Continue as is maybe tweaking our debt/drug usage with no pain now and death or near-death later with blue skies decades away.
3. Go cool turkey gradually stopping our debt/drug usage over 3-10 years with massive pain spread and slightly minimized with blue skies in 5-10 years.
I think Option #3 is the most reasonable, but I fear Option #2 for my kids. Even getting close to a balanced budget should work as long as our economy stays innovative and flexible.
The closing price mid-way between today's high and low is probably fitting with the unknown deal over the weekend. The bull market uptrend line is around 1275ish and the 10x gap/pivot line is at 1270ish. It seems unlikely SPX would gap below those levels. If 1347-->1283 is a series of nested 1-2s, FIBBEWIE projects a low at 1206-1226 and possibly lower if there is more wave nesting, and an application of FIBBEWIE to 1371-->1258 projects an ultimate low at 1122-1156. Having said that, bulls are still alive if they can hold today's low and recapture 1320 next week. The System is still short from 1320 with stop currently at 1313 while trading in and out of 25-50% of its position. Good luck.
(Update Fri 7/29/11 11:15AM EST)
Impressive gap fill. Although I am technically-focused, it is not lost on me that the US printed near-recessionary GDP figures which could get revised down further despite the tailwind of QE2, and the economy has not shown any consistent signs of improvement for Q3. And, anything in the ballpark of currently discussed debt deals will not help except maybe as a brief sigh of relief and false hope for the less informed. So, I believe the current bounce is very technical from the 200dSMA. Bullish Scenario #2 (7-month triangle from SPX 1344 ending at 1290ish) is still alive and one last hoorah to new highs is possible. Today is only 2 trading days from the projected August 2nd mid-cycle low which is close enough. Dynamic RSI has not confirmed the completion of the down leg from 1356, but we have new 15min RSI lows and price overlap at 1303. So, the possibility exists that today's intraday rally is another small nested wave 2 until we see 1316 surpassed or Dynamic RSI confirmation. Bulls might be able to survive a retest of today's lows, but I think the next test of the bear market uptrend at 1275ish will fail so there's a tight window. If SPX does surpass 1316, that lines up with a 50% retrace of 1347, so SPX would not likely get much if any beyond 1320 if the bearish case is still in play. 1290ish and 1320ish are still the key areas regardless of the gyrations, and the technicals and fundamentals are in a position to cause major mayhem in Scenario #3 if Scenario #2 cannot hold. We will probably know the next 3-6 week large trend by Tuesday. If a weekend/Monday debt deal cannot get the market to turn 1320 into support, you know my guess. Good luck and good weekend.
(Update Fri 7/29/11 9:25AM EST)
It looks like SPX will test my last key support area and projected minimum target of 1290ish this morning. Bulls can't let it drop much further if the Scenario #2 bullish triangle is in play. If the 200dSMA is broken at 1284, I'd expect some brief capitulation. The ENTIRE bull market uptrend line crosses around 1275ish today. The 10x gap/pivot line from 1344 through the 1290s tops is at 1270ish today and falling 3pts or so per week. So, below the 200dSMA, there is likely support at 1275ish and possibly down to 1270ish, but once 1280 is broken, the current downleg from 1316 would be the largest leg since 1356 making it a likely wave 3 and portending wave 4-5 action down to 1220-1250 before we probably/maybe get one last-ditch rally after the crash setup is triggered at 1258. Nothing is 100%, but this is likely the last chance for bulls to keep the bull market alive. Good luck.
(Update Thu 7/28/11 3:50PM EST)
SPX reached the 1290s. Technically, I've been projecting 1290ish (something below 1296 but above 1280 on any spike down). However, we are now heading into the close with the GDP announcement looming tomorrow morning without yet breaking 1296, so this is a risky situation all-around. A GDP rally is possible, but it would need to turn 1320 into support and 1320ish would be a possible irregular flat target. A GDP-induced plunge is also possible, and, if 1290 becomes resistance, we could easily interpret the 1303-->1316 rally as yet another nested wave 2 (albeit weak at a 30-40% retrace depending in if you use the 1338/1343/1347 pivots) in which case 1290-1300 should become semi-permanent resistance. Just something to consider. Good luck.
(Update Thu 7/28/11 9:10AM EST)
I have a gut feeling about the debt ceiling resolution.
1. Republicans and Obama will NOT compromise on their opposing multi-staged debt ceiling positions.
2. Obama will be forced to use Executive/Constitutional powers to avoid panic and a forced balanced budget on the night of August 1st or probably shortly after. He'll force a vote on a 1-page bill that only raises the debt ceiling temporarily without strings and/or he'll raise the ceiling on his own.
3. Obama will be embroiled in debate over the legality of his actions and the budget/spending/credit debate will continue through the elections.
The bottom line is that I get the sense that the Republicans feel they have the upperhand and will try make Obama do something that hurts his election chances even through August 2nd. We'll see, but Monday won't be a pretty day in the market if there is no weekend resolution (and possibly vice versa depending on the details of any agreement). Good luck.
(Update Wed 7/27/11 1:40PM EST)
SPX fell below its 20dSMA out of bullish configuration in a new hourly and daily down trend. That combined with a 30%+ retrace of 1339 placed the System in a short trade at 1319.5 with stop currently at 1339. If the new cycle from July 18th at 1296 topped in only 3 days at 1347 and the 1296 pivot is broken, then the odds favor the same reaction that occurred during the last 2 matching scenarios in June 2011 (1344-->1258) and September 2008 (30%+ drop). Given the sharp SPX drop to 1311 today, bullish Scenario #1 is now unlikely, and my preferred Scenarios #2 and #3 move solidly to the front. As I expressed on Sunday, I believe the key price levels to differentiate the scenarios are 1290ish and 1320ish. The 7-month bullish triangle scenario from SPX 1344 allows for a trip to the 1290s and even a brief piercing of 1290, but if bears make 1290 resistance, watch out below with my crash setup triggered at 1258 and a bear market confirmed at 1220. Bears tempted fate at 1258 and 1296 and survived, but crash odds ratchet up a couple notches on a 3rd test of the 200dSMA after further wave nesting (1-2-1-2-1-2). Bulls need to turn the 1320s into support to avert disaster. The price level and rally strength out of the anticipated August 2nd +/- mid-cycle low will set the trend into September, and that trend should be strong after a 7-month consolidation. Good luck.
P.S. 3:15PM EST SPX has now dropped below its 50dSMA for the time being. Shanghai has followed the triangle backtest and wave 3 downturn that I projected a couple weeks ago. USD is defying the odds by rallying strongly today. What looked like a triangular consolidation now looks like an irregular flat that could have bottomed, but it's also possible USD could continue lower with SPX or make a new annual low supporting a new SPX high. I favor the bullish USD irregular flat because everybody is so pessimistic, but I'm sticking with what I know best - SPX. The way SPX has continued lower today opens up the following possibility:
1. SPX drops near 1290 on 7/28
2. SPX rallies to 1310-1320 into the Friday GDP
3. SPX drops hard near 1250 around August 2nd-4th (the projected mid-cycle low)
4. SPX rallies into or on the Friday August 5th jobs report
5. SPX crashes into Labor Day or beyond to 1100-1150
I'd say the bullish triangle Scenario #2 is looking less likely unless SPX bounces on Thursday and makes a 1290ish low Fri-Tues after the Friday GDP. Whatever the exact path, bulls need to turn 1320ish into support. The wild card is a debt ceiling deal but the market knows none of the discussed deals are meaningful, so it would fit best if that deal occurred during my step#3 above next week prior to jobs hitting everybody in the face. BTW, the typical behavior for a zigzag NYAD setup like we have today is to rally but after a lower low the following day so expect a reversal on Thu/Fri that makes everybody think the bull is back, but it should be short-lived. Good luck.
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For some reason, it appears my Sunday post was only saved as a draft, so I am publishing the post as is and will add a small update above.
My System was expecting a cycle low around July 19th, and 1290-1300 was predetermined to be ultra-critical support. The System had been primarily short from 1342 to 1296 and was stopped out of its remaining position at 1316. Now, the System is in long mode because SPX held support at 1290-1300 unable to drop below the 38% retrace level for 1371-->1258 for more than a few hours, and SPX has now surpassed all key moving averages and the 62% retrace level at 1328 at the start of a new cycle which puts it in a bullish configuration. Unfortunately, the System was not able to take a new long position, because the 1316 breakout was more than 10pts above the 1296 low and thus required a 30% retrace entry which never occurred. On Friday, the hourly trend turned down at 1338 and held resistance at 1346.13. The System's next move will likely be a long entry unless daily support at 1323.65 or the 20dSMA is broken in which case the System may move into short mode into the mid-cycle low expected to be around August 2nd. The next full cycle low (which can be a much higher low) is projected for September 12th which I truly hope has nothing to do with any attack on the 10th anniversary of September 11th.
Although my System is in a bullish configuration, this same exact thing occurred 4 days into a new cycle at 1344 on May 31st. An early cycle failure usually precipitates more downside like we had in 2008 and down to 1258 recently. The consolidation/triangulation of SPX over the last 7 months has led to a lot whipsaw, and many smarter investors than me will point out that volatility will increase at a distribution top. The question becomes will SPX make a new high and, if so, how and when? Futures are down about 13pts now but the debt news is fluid.
Here are the key upcoming dates in my studies.
Aug 2nd +/-: the mid-cycle low pattern for 3 consecutive cycles pinpoints this date plus the spending breakout in June suggests a good-sized SPX bottom in early August.
September 5th-9th +/- a couple weeks: the next projected huge SPX bottom based on the significant March 2011 spending pivot low
September 12th +/-: next full cycle low
Knowing that many world markets look toppy as do some key US stocks like Apple and knowing many daily and weekly technicals show RSI, breadth and cross-market divergences and knowing the Shanghai Midnight indicator and crash setup are not confirmed to be eliminated yet and knowing the key dates just mentioned, I can paint 3 probable scenarios.
1. Bullish after a small pullback into the first week of August: SPX triangle abcde from 1344 completed at 1296. SPX is likely to retrace 38-62%+ in a wave 2 down to 1315-1328 near the 20dSMA and 50dSMA. Then, SPX would rally with target zones of 1380ish and 1440ish and a sizable pullback in early September.
2. Bullish after a large pullback into the first week of August: SPX triangle from 1344 still needs one more leg down to complete c of e likely breaking 1296 slightly. However, bulls will tempt fate if they drop below 1290-1300 for more than a few hours. The subsequent rally target would be 1380ish or 1440ish with a sizable pullback in early September.
3. Bearish: SPX topped at 1371 and has completed a 1-2-1-2 since then. Wave 3 should drop hard and fast to 1250-1270 followed by some further lows at 1220-1250 in the first week of August. Then, SPX would rally 50+pts possibly in a matter of days only to fail miserably to sub-1200 into early September when a monster rally should occur.
If SPX manages to avoid a sizable drop on Monday, Scenario #1 is likeliest but with a possible twist I will outline if necessary. If SPX does drop significantly on Monday, I tend to give bullish Scenario #1 the lowest odds. However, it remains highly viable until SPX gets below the 1320s at which point Scenario #2 favors a slide to the 1290s and possibly the 1280s. Scenario #3 favors a break of 1258 and 1249. That may not sound extremely helpful but there is 2-3% of separation between each scenario which is tradeable, AND the first week of August is key. If SPX bounces hard from 1290ish or 1320ish in the first week of August, then we'll have a bullish setup for a few weeks. If SPX falls to 1220-1270 in the first week of August, the bearish scenario is highly likley. So, the real key is to be prepared for a bottom in the first week of August with the price level telling us the pattern chosen. I favor Scenario #2 or #3 but the market will tell us within the next 2 weeks. SPX could easily move 100+pts in either direction in a matter of 3-5 weeks from the first week of August. This Friday's GDP announcement and the following Friday's job numbers should be key short-term inflection points. Good luck.
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