(Update 8/30/2011 2:10PM EST)
I may have jumped the gun. The DRSI exception is the triangle/EDT, so SPX could still form 5 waves from 1136 ending in an EDT if it tests 1214ish again. Watch Dow/Naz too. In that case, my preferred count would stay preferred. Will evaluate tonight. Daily DRSI is within pts of resistance. Good luck.
(Update 8/30/2011 11:45AM EST)
Quick update. The System went short at 1202.97. SPX is right at the normal stop level of 1214, but two times recently, SPX has moved just beyond my .25% (+ rounding) likely due to the higher volatility, and the System allows adjusting s/r based on key pivots. 1214.94 was a previous degree wave 4 (as was 1218 at lower degree) and 1215-1229 is an OEW resistance range, so I'll extend the stop to 1220. I'm also willing to do that because DRSI now supports 1121-->1214 (or so) as 5 waves, and my ideal target range was 1191-1215. I still might stop out if SPX closes at 1214-1220 depending on the indicators. 1121-->1191=5waves, 1191-->1136=3waves, 1136-->1210=5waves, 1210-->1196=3waves, 1196-->1214+=5waves. That is the 3rd scenario I laid out last night with SPX holding above 1191. That means, at a minimum, SPX should pullback 20-40% in a B wave. Currently, that target would be 1179-1196. I would likely temporarily exit my short in that range near the OEW 1187 pivot, but I'll weigh the evidence as it unfolds. There is an odd possibility that the 5 waves from 1121 is completing a 3-3-5 flat, but I'm probably going to switch to OEW's #1 count (my previous #3 count) until proven otherwise. I'll analyze the charts more tonight. SPX may make one more slight high today, but a 1-2 day top is probably in if SPX falls much below 1208 again. Good luck.
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I added a link to my public charts on the right side of the blog, so you can access them at any time. Shortly after I finish this post, I will update those charts tonight including some DRSI analysis on the 5min chart.
Volatility still reigns. Unfortunately, the System was stopped out at 1194 for a 1.7% loss after entering at 1175 on Friday, but a whipsaw or two is not uncommon at turning points. I was actually hoping the System would get another short signal mid-day today during the grind higher, because the stop would be very close but it wasn't meant to be. The System will re-enter short at 1202.97 or higher if SPX closes higher in the Tuesday morning hours. If SPX gaps down below 1198, the System will wait for a 30% retrace before shorting. Personally, I executed my swing trading plan and went fully short around 1199 with an average entry of 1186. That's a little worse than I'd like, but my money is where my mouth is for better or worse. With a profit target 85-95pts lower, a 25-35pt drawdown is not at all unreasonable, but I'm ready to pull the plug if I don't see what I like as described below.
As the title suggests, I believe SPX is either (a) within points of the top of the rally from 1121 OR (b) heading to 1260ish. Let me explain the reasons why a top could be in.
1. Ideal price target reached: SPX has reached the ideal target range of 1191-1215 for my #1 preferred count, an ABC from 1121. The upper target range was 1220-1233, but the technicals tell me that is no longer likely unless we wedge in a final EDT. SPX 1198 was the 38.2% retracement of 1356 and 1208-1215 were the previous degree wave 4s.
2. Ideal time target reached: Although SPX could trade higher for 1-2 more weeks and still make a momentum low by September 23rd in the outer window of the System cycle low, it is a low-odds play to think SPX will drop 150+pts in 1 week so a higher low and a different count would be likely if SPX rallies beyond this week. The bullseye cycle target is September 7th and that is only 6 trading days away, and most sharp downtrends have taken 5-13 days in recent years.
3. DRSI supports it: DRSI favors 1121-->1191 as 5 waves (but allows a 3-wave count), 1191-->1136 as 3 waves and 1136-->1210+ as 5 waves. Obviously, from 1121, we have a probable 5-3-5 structure assuming SPX does not rally much higher creating a new RSI high and wave 3 extension.
4. Daily topping indicators: Many of them were triggered today. %B10=0.9+. NYADV was sky high AND made a small change at an extreme level. TRIN <=.3 means blastoff or imminent top. TICK>1000 2 days in a row=blastoff or imminent top. VIX broke thru its 20dSMA, fakedown or breakdown? Stoch is near 80. dRSI nearly reached the level seen at SPX 1347 and that's often resistance.
5. USD/Gold: USD fell as low as 73.53 today which was very very near the important 73.45 level which is likewise not far above the 72.70 multi-year low. I don't claim to know how SPX will be affected if USD collapses below 73.45 or rallies out of a 15+ month wedge, but I do know it's an inflection point that should provide a reaction within the next few hours or days.
6. The 20dSMA: In my old System, a gap above/below the 20dSMA was significant and usually signaled a new trend unless reversed immediately. And, today would have been considered a Marker Day which means a close beyond today's high/low sets the trend. It wasn't foolproof but worked more than not.
In summary, if SPX does not fall hard from 1210 or so within the next few days, the secondary count will look a lot more probable for a ride to 1250-1260+, because most of the reasons above will have been violated.
Let's play out a few scenarios to aid in trading.
1. SPX rallies hard on Tuesday = bullish.
In this scenario, SPX will likely make a new DRSI high suggesting a wave 3 continuation (likely 3 of A) with any pullbacks being small wave 4s probably into the Friday jobs report just in time for a larger wave B retrace back to 1190-1200
2. SPX overlaps 1191 = bearish.
In this scenario, I would discount a 1-2-1-2 count from 1121 because the ultimate FIBBEWIE target would be much too high (1300ish) for any of the bearish scenarios. I would instead favor 1121-->1210+ = ABC top OR maybe =123 forming a wedge wave A to 1210-1225. How will we know the difference? Well, the wedge should contract, and the bottom of the wedge will likely be at 1170-1180 by end of week. And, the 89hEMA/SMA and 20dSMA should all reside in the 1170s, so the more bullish count should not fall below the 1170s this week. I made some reverse-engineered FIBBEWIE calculations, and even my preferred bearish count could end its first wave down around the 1170s, so it will be important to determine a 3 or 5 wave structure if that happens. Overall, an overlap of 1191 would favor the bearish count because a 1-2-1-2 would be unlikely and a 12345 wedge should not have w3>w1 like it is, so the ABC interpretation to 1210+ would be best. However, if SPX overlaps 1191 and then makes a new rally high, that could be very very bullish.
3. SPX stays above 1191 after pulling back from 1210-1220 = bullish.
In this scenario, 1121-->1210+ will be best counted as a 123 rather than an ABC, and the drop to 1192-1200 would be a wave 4 with a wave 5 to 1220-1233 probably into the jobs report followed by an ABC to 1180-1200.
After going through the possibilities for Tues/Wed, it sure does appear that bears need an SPX overlap of 1191 before SPX rises much higher in order to keep their case alive short-term, and bears need a drop below the 1170s to make their case very strong. All in all, given the 6 reasons above and the 3 scenarios presented, I believe SPX must make an imminent reversal down for me to maintain my preferred bearish count. Otherwise, I will switch to OEW's preferred count with a 1250-1260+ target and exit my short position as favorably as possible. Let's face it. Bernanke did NOT promise QE3, the EU deals look shakier every day and the economic numbers are not getting better, but the market can still rally on low-volume, short-covering relief for a while longer, so that's why I'll just trade my technical analyses. I know for the moment that it may seem unlikely that the bears can quickly take charge again, but a drop below 1191 that sticks could have people running for the exits in front of the jobs number and holiday weekend. Likewise, a rally into the jobs number would offer a perfect profit-taking opportunity for some holiday spending money. Either setup could of course be exacerbated if the jobs number is well below the 75K consensus. But even if the jobs number is horrible, it's not too far-fetched to expect the QE3 squeals to reach a high-fever pitch shortly afterward and start another rally. So goes life in the new bear market. Good luck.
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