Fri 8/26/2011. Only 2 likely counts now.

(Update Fri 8/26/2011 4PM EST)
I hope everybody has a safe and relaxing weekend. The System is 100% short from 1175. I am personally 60% short from 1175. I give 50% odds that the top of wave 4 of 5 from 1371 ended at 1181. I give 30% odds that SPX will form a wedge a little higher to 1190-1215. I give 20% odds that SPX merely finished 1 of 5 of C of 4 from 1371 and will now rally to 1220-1233.

Why am I leaning bearish? The #1 preferred bearish count suggests a top is likely at 1181 or not far above. The daily indicators show a NYADV double top zigzag at a bullish extreme above 2500. Daily RSI5 and RSI14 are hanging around 50. VIX closed just above its 20dSMA. SPX closed just below its 20dSMA, the recent 1191 pivot and the OEW 1187 pivot. The 2 rally legs from 1102 have been on much lower volume than the down legs. TICK ended well above 1000 in a double top formation. There is hurricane risk. There is minimal Fed, US and EU support for the next few weeks with problems still brewing. Although SPX is in the early time window for the System cycle low projected on September 7th +/- 10 days, the low today did not meet a single criteria for a typical bottom, so the low is highly likely still to come. Mr. Market could very well want a top below 1208 to cause maximum confusion. I consider all of those things bearish.

From 1181, SPX may have dropped in a 1-2 or completed an irregular flat wave 2 at the 1169 backtest. So, either way, there is a chance for a wave 3 (up or down) on Monday. A weak Monday rally would favor the wedge scenario to 1190-1215. A strong Monday rally would favor 1181 as merely 1 of 5 of C. A gap down would favor 1181 as a top OR a more typical wave 2 if it doesn't drop too far. Regardless, we're down to 2 primary counts, and both suggest an imminent top, so we're just refining the short entry. I decided to join my System and risk whipsaw on Monday. If SPX rallies on Monday, I'll decide whether to stop out of my swing trade or just build my short position to 100%, but the System will exit at 1185 unless there is a gap up near there in which case I'll move the stop a little above the 1191 pivot. Enjoy your weekend!

(Update Fri 8/26/2011 3:40PM EST)
The System went short on a 2-candle support break at 1170. Actually, the drop was borderline 1% so I waited for a 30%+ retrace to 1172 and got in at 1175. I personally followed this System trade with a 60% short position. I see some risk for further rally, so I will add or subtract depending on what happens next.

(Update Fri 8/26/2011 2:30PM EST)
Strange action at 1170-1181. Maybe a 3-3-5 flat. Maybe an expanding diagonal triangle. Maybe a top. There may not be another rally, but, if there is a rally as I suspect until 1170 is broken, that rally needs to decisively break above 1181 or else risk a sharp drop that could kickoff the 5th wave from 1371. Since 1136-->1181 is 45pts, it can be 1 of C with a FIBBEWIE target of 1220-1235 which is the upper end of my Count #1 target range. That is one reason I wanted to see 1191+, because then the odds favored that the 5-wave structure would not be 1 of C to 1250+. So, if SPX pulls back sharply from the low 1180s, then the top could be in, but we'll need to be aware of the possibility that it merely ended 1 of C. Regardless, shorting a failure from the low 1180s (such as a SPY 5min volume spike with reversal candle or a minor support break) should be good risk/reward. If you don't wait for the failure, there is risk that 1181-->1173 was a super weak wave 2 and you'd get a wave 3 up in your face on Monday.  Let's hope we either get a breakout or failure before the close to reduce the risk. Good luck.

VIX is now above its 20dSMA, and the SPX 20dSMA is at 1181. Breakout to 1190+ or breakdown from there?
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Lunch time. 1167 was surpassed. The System short position was stopped out with a total gain of approximately 1%. We are now down to 4 counts (out of the 6+ I've mentioned in the recent choppiness), but only 2 are likely in my eyes including my preferred Count #1 which may have come back from a near-death experience this morning. I'll stick with the same count numbers I used before to avoid confusion.

(1) 1121=wave 5 of 3 of 5 from 1371.
Since 1121, SPX likely rallied 5 waves to 1191 in an A wave, but the Buffet spike made a marginal new RSI high within the margin of error, so we cannot be 100% sure. Wave 4 of 5 from 1371 could retrace 30%-38%-50% to 1191-1211-1238 with 1191/1208/1215/1225 being other key pivots/Fibs in that range. If 1121-->1191=A, then C=A at 1206, C=A*.786 at 1191 and C=A*1.382 at 1234. There are lots of reasons to believe that my previous target range of 1190-1225 will be reached via ABC in this count with upper limit at 1233ish.

(2) 1101-->1208-->1121-->1191-->1136-->1170s? = wave 4 of 5 triangle from 1356
This is technically less preferred than #1, because DRSI favors 1208-->1121 and
1121-->1191 as 5 waves, although both counts were borderline and DRSI can be wrong. Fundamentally, I'd say #2 gets the slight edge, because Europe is still falling apart and the lack of Fed action should make any rally short-lived.

(4) 1121=wave A/1 of bear market from truncated top at 1356

(5) 1121=wave 5 of C from 1371

I'll explore Count #4 and #5 more if SPX approaches 1233. Count #1 has us covered until then.

Triangle Count #2 is eliminated above 1191 and on thin ice as 1180 is exceeded and the 1208-->1191-->1186ish upper triangle boundary is exceeded. SPX is at a key moment as I speak falling back from 1180 to 1174. Its DRSI peaked at 1180, so price has reached the upper triangle target in a possible ABC pattern. SPX needs at least one or two more spurts higher to form a definitive 5-wave pattern and probably cannot afford to fall below 1172ish. But, whether SPX stops at 1180 in 3 waves or extends higher to 1191-1211+ in 5 waves, it's looking probable that SPX finishes its rally today! The C-wave should be 5 waves. Sure, SPX could be finishing 1 of C which could ultimately end as a wedge in a couple days OR blastoff in Count #4 or #5. But, I think any short position built at 1191-1211 should be a great swing trade for 1-2 weeks, because even if it's wrong, SPX will almost certainly backtest that area soon. And, any short from 1170+ can use a tight stop at 1180 to await the next short attempt.

In case you didn't catch what I said, the pattern now tells me there is a reasonable chance that the high today will mark the end of count #1 or #2. While most people agree with what the Fed did, the lack of stimulus until at least September can't be a good thing for risk assets. What happens in the next hour or so could very well determine count #1 or #2. If things setup right, Monday could be a nasty day. Be careful. Good luck.

P.S. I just realized that a good trick by Mr. Market would be to NOT exceed 1208. Stopping at 1180-1207 would leave numerous counts/patterns technically possible. Then, Mr. Market would be free to decide if it wants to follow up a September cycle low with a higher low or a lower in the first half of October depending on the EU, US and Fed decisions during that time frame. In any case, my guess is that we'll see 4 more 8-10%+ trends in the next 6-8 weeks. There's money to be made with swing trades and long sleepless nights if you try to catch smaller moves. Wow!

The ideal scenario for shorting would be 1-2 more pops to 1191+ on a SPY volume surge and negative divergence followed by an end-of-day VIX surge back up to its 20dSMA possibly as SPX pulls back in the final hour/minutes.