Sun 8/7/2011. Crash targets.

(Update Tues 8/9/2011 3:45PM EST)
Dynamic RSI just confirmed that the 1347 downtrend is FINALLY complete. The bad news is that there may still be downlegs corresponding to 1356 and 1371. I sold the System's remaining 25% short position after 1152 hourly candle resistance was just broken. The total gain from 1320 after trading in and out was nearly 15% in 2 weeks. I use leveraged instruments which gave me many multiples of that. Frickin incredible. Although there are plenty of bottom indicators to justify a long position, my System rules require a safer 30% retrace if resistance is broken more than 10pts or 1% from a bottom unless a 30% retrace occurred just before resistance was broken. 1102-->1152+ qualifies, so I'll need to see an ABC or choppy 15-20pt pullback with volume surge before possibly going half-long for what would probably be the C-wave higher. Neutral for now. I hope you all have survived at a minimum and hopefully prospered. Survival comes first. Dow now up 300+. Wow. Don't be fooled though. My projection remains 1102-->1200ish-->1100ish or 1070ish over the next 1-2 weeks although a higher low is possible. September 7th is the projected cycle low. Good luck.

P.S. 4PM EST - SPX is already testing 1170. If it gaps higher tomorrow, that would confirm a 1-2-1-2-3 from the bottom likely ending wave A at 1200ish followed by a backtest of 1170ish (maybe 1150) and then final rally to 1200-1230. If SPX gaps lower tomorrow, I'd say wave A likely completed already at 1173 with B wave back to 1150ish and then a C wave to 1200ish or maybe 1220.WARNING!!! WARNING!!! NYAD is at an extreme high. In reflex rallies like this, the historically best setup for bears is a 2-day rally that makes a small NYAD change at extreme highs which would be likely if SPX closes much higher tomorrow. 2nd best for bears is a 3-day scissor setup which would typically involve a flattish (+/- 1%) day tomorrow followed by another positive day with NYAD forming a scissor or alligator mouth formation. If the rally lasts beyond 2-3 days, the odds get about equal for bulls and bears. I plan to short the 1200-1220 range if given the chance Wed/Thu. VIX will likely shoot back up on the next downtrend when people fear the all-clear was a trick, but it should form a negative divergence for a more solid bottom. There will be MORE CRAZINESS for 2-4 weeks with a few lull-you-to-sleep days mixed in to fool you. Good luck.

(Update Tues 8/9/2011 3PM EST)
Don't even bother trying to count EKG-like waves after a Fed meeting. The Fed basically gave us the language-softening that I predicted before the crash, but, after I saw the crash, I thought they might add at least a little more juice. Apparently, they had some internal resistance with fears of inflation etc, so we did not get anything close to QE3 which I doubt we'll see until deflation takes over again.

Regardless, SPX has now tested the 1100ish level. I'm not sure if 1070 will be reached, but the downtrend from 1347 was STILL never confirmed as complete. Maybe it is now if for no other reason than almost all the major news items are history (bad GDP, blah jobs, embarrassing debt ceiling agreement, credit downgrade, Fed disappointment). Unless we are going to see a bank failure or sovereign default (which appears highly unlikely at this exact moment), I don't think the news could get much worse. This could be a classic sell the rumor, buy the news moment.

One of my Fib retracement scenarios last night included an 1100 bottom. A 38.2% retracement of 1347-->1102 is 1195. I also mentioned that history proves high odds for a bottom 1-3 days after historic drops like we got on Thursday or Monday, and a 34% retracement was the smallest I studied. So, IF 1100 holds, I will stick with my projection for a likely 1-2 day rally (possibly 1 week) to 1200ish and maybe 1215+ before a test of the lows within the next couple weeks. Obviously, any rally now has resistance established at 1150ish, then 1170ish, then 1200ish, then 1220ish. Tough road to hoe without much tailwind but short covering could provide enough fuel until all the long covering occurs at 1170-1220. Wild wild ride when volatility is this high. Good luck.

P.S. Dow has now gone from +200 to -200 back to +150. Incredible. If you count 1356-->1296=w1=61pts and 1347-->1102=w3=245pts=w1*4 like I do, then the length of w5 is pretty wide open. Let's say SPX rallies to 1204 where w4=w2*2. Obviously, a 61pt w5=w1 would not come near the low, so we are likely to see 61*1.62=99 which would allow a double bottom around 1100 OR w5=w1*2 would take us to the next support level at 1070ish. So, for now, my projection is 1102-->1200ish-->1070ish or 1100ish over the next couple weeks, but I'll tweak as we go. Then, the question will be if we completed an ABC, 121 or 123 from 1371. FYI...with SPX now near 1140, Dynamic RSI is entering the hourly RSI12 resistance zone established at SPX 1316, 1289, 1261 and 1215, so it is possible that a breakout of 1152 would also be confirmed by Dynamic RSI as the completion of the downtrend from 1347 finally. And, System hourly candle resistance has now fallen to 1152 too. So, I'd say 1152 has become VERY important. Bulls are not out of the woods yet, and even if they break 1152, I suspect they won't get far (1200ish) before the bears catch them again. There are probably bears trapped at 1100-1150 and bulls trapped at 1170-1260, so I think those ranges are going to be tested a bunch over the next few weeks. If you short the spike highs (I look at 5min SPY volume, TRIN/TICK spikes and end of day indicators) at 1190-1220 and buy the spike lows at 1100-1130, you will almost certainly be rewarded a few percent at a time on several occasions if you have patience for 2-4 weeks and possibly months although I expect SPX will briefly test the 200dSMA and possibly 1250-1300 in the next 2-4 months. Good luck.

(Update Tues 8/9/2011 1:30PM EST)
Dangerous moment. SPX has established 1120-1150 as a range. SPX 1170-1220 is the range above that from last week and last November. Due to the consolidation and possible double bottom pattern, if SPX solidly breaks 1150 (with FOMC reinforcement), it's looking less likely that 1170 will provide much resistance, so I suspect SPX will reach 1200ish with a backtest of 1170ish mixed in. On the other hand, if SPX breaks below 1120, we'd have a consolidation/intraday-triple-top pattern projecting to 1090ish which is near overnight lows. If we see a rally, I'll be watching Dynamic RSI to confirm that the downtrend from 1347 is finally over. From chart appearances, that would likely occur around the same time System hourly resistance is broken at 1161. If we get that signal, keep in mind that my studies of the 30+ largest SPX drops since 1980 show that the smallest retracement was 34% (34% of 1347-->1119 = 1197) with a 38.2% retracement at 1206 unless 1119 is broken first. Given the System's 25% short position size, I guess you could say I'm fairly neutral at the moment with the FOMC announcement pending. Be back soon.

(Update Tues 8/9/2011 10AM EST)
I just read my post from last night and noticed a lot of typos. Sorry. It was late and I was tired. I'll summarize with SPX near 1145 as I write. If 1119ish holds today, the bottom line statistically-speaking for the top 30 single-day drops like we had Thursday & Monday is that SPX will likely (1) rally in a wave 4 to 1200ish in 1-2 days (possibly 1 week) with an outside chance that SPX stops at 1170ish or 1230ish, (2) drop back to 1070-1120 in 2-13 days with an outside chance of forming a higher low at 1140ish or 1160ish and (3) rally back near the wave 4 high over the course of weeks in a choppy fashion. If SPX drops below 1100 before backtesting 1168, the rally targets must be lowered some. FOMC announcement at 2:15PM. Good luck. 

P.S. System hourly resistance fell to 1161 on Monday's last hourly close. I will sell the remaining 25% short position there. A break above 1152 could lead to a double-bottom target above 1168 to 1185ish. If that happens, I'd expect a backtest of 1168ish and then a final run at 1200ish and possibly 1215+. A lot depends on the Fed.

(Update Tues 8/9/2011 1AM EST)
You probably know some of the records broken so far this month. When the flash crash occurred, I analyzed similar scenarios and predicted the likelihood of a heavy retracement followed by a fairly quick retest of the lows. I've done the same tonight for what were the 28th and 12th largest SPX percentage drops on Thursday and Monday respectively. I studied almost all of the top 30 that occurred since 1980 and which are listed at http://www.calculatedriskblog.com/. I'm going to list my observations and you can investigate the details if you like.

1) 11 of the top 25 came from 2008. 20 of the top 40 came from 2008-2009. 2 cases obviously occurred in the last 3 trading days and 4 of the top 40 came from 1987. 4 came from 2000-2002 as well. Overall, 3 out of 4 in the top 40 came from the most infamous bear markets of 1987, 2000-2002, 2008-2009 and 2011. So, I think it is safe to say SPX is likely in another historic bear market that will drop 33-66%+. We're at 18% now.
2) Almost all of the huge drops led to sizable bottoms within 3 days and often within 1 day, and those bottoms were usually not far below the huge drop relatively speaking. The notable exception was October 16th/19th 1987 which occurred around a weekend and 1 day after a 200dSMA break and multi-month pivot breakdown. And, the next trading day after 9/11/01 also led to several bad down days worse than the norm. In 1987, SPX bottomed slightly lower on Tuesday after its bad Fri/Mon. So, I expect SPX to bottom out Tues/Wed this week at 1070-1120.
3) Slightly more than half of the lows that developed within 1-3 days after huge drops were broken days or sometimes 2-4 weeks later after a sizable retracement. The minimal retracement I found to the previous major pivot (1347/1356 in this case) was 34% with several at Fib 38% +/- but 75% of the cases actually retraced 45-67%+ before failing. More than half of those bounces occurred in 1-2 trading days with the rest taking 4-7 days, and the lower lows. So, once SPX bottoms likely in the next day or two, a Fib 38% +/- retrace of 1347 is almost guaranteed with a statistically likely 50-62% retracement +/- occurring over 1-2 days or no more than a week or so followed by a few nasty days down.
4) When higher lows did occur in almost half of the cases, the retracement from the large bounce high back to the bottom was always greater than 50% and 70-80% was common. So, after a sizable bounce, the bulls need to hold either the 50% or 78% Fib areas forming higher lows. Most of the higher lows occurred during bull market corrections or after damage beyond the huge drop day had occurred. My quantifiable analyses say we are now in a bear market since 1220 and now 1130 were cracked. And, most of the damage from 1371 was just done in the last 3 days, so I feel comfortable saying the next bounce will be a wave 4 not a new bull market rally following an ABC.

In trying to be prepared for further downside Tuesday followed by a monster rally, the Fib 38% retracements for 1347-->1119, 1347-->1100 and 1347-->1070 are at 1176-1206. That approximates the minimum retracement seen in huge drops like we have experienced, and it fits a typical wave 4 scenario. And, it makes sense from a margin call and trapped long standpoint. Also, the last breakdown low was 1168 and the previous degree wave 4s were likely 1151 and 1215 with a gap breakdown at 1199. Above that, there was a breakdown below 1235 with 50% retracements at 1208-1233. Currently, there is NOZO (no overlao zone typical of wave 3s) below 1235.

So, as long as SPX holds the 1070-1130 congestion area from 2010, it should rally hard for 1-2 days (possibly a week) to the 1168-1215 area with an outside shot at 1220-1230 and strong resistance at 1170ish and 1200ish. After that rally, SPX should fall hard for a few days falling at least 50% of the way back to the bottom with 78% likely and a lower low likeliest of all. If that lower low breakdown or retest occurs in August (as seems very likely) before the projected System cycle low on September 7th, I would guess the lower low would either turn into a MUCH lower low perhaps testing 1011/1040 or a wedge-like choppy low or both. The scenario I laid out not only fits the stats and technicals, but just use common sense and realize that in this case there is a growing realization of a horribly-inept economic growth cycle turned south, an upcoming financial debacle with immense austerity and possible depression. I think 1200-1260 may prove difficult resistance to break for years to come. Although I don't recommend shorting Tuesday and I in fact will sell the remaining 25% short position on any large gap down, I will continue to recommend selling all rallies into September and then the larger rallies into end of year.

Get ready for the Fed. I still suspect Ben will do something short of QE3 that might provide some relief but nothing that will get SPX back above 1260. Europe is unlikely to show the market enough conviction and unity of its disparate countries until maybe their September parliament sessions if ever. Good luck.

(Update Mon 8/8/2011 2:40PM EST)
Incredible. My Crash, H&S, Discretionary Spending, Shanghai Midnight and technical targets were all reached in a matter of days. Since 1130 was broken, that ensures the next big rally will be sold and lead to a lower low likely within weeks but possibly months with 956 being the next key bear market marker. I need to re-evaluate after the close, but a test of 1011/1040/1070 support now seems very probable into September. The System has reduced its short position from 50% to 25% at 1130. The last portion will ride until hourly resistance is broken...currently at 1170 but falling with each hourly closing low. The original 100% short position was entered at 1320, although the System has been mostly 50% short (25-75%) since the 1234 low and 1260 re-entry. I am still not convinced the Fed can risk QE3 but it would be a complete 360 degree turn if they didn't try something to boost assets, so a monster ill-fated rally can happen at any moment. There is now a much better chance that the next rally will complete the 1347 downtrend, and a 23.6-38.2% Fib retrace (from 1119 currently) would be 1173-1206. Given that Fib 1173-1206 range and the 1168 pivot breakdown and the 1215/1218 wave 4 highs and the huge volatility, I would say the next rally should reach 1168-1220 with 1200 proving difficult resistance due to the gap & trap from there...assuming 1119ish holds. Good luck.
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I am re-posting my big-picture points from earlier this week, because I think it is important to not miss the forest for the trees which can happen with all the intraday gyrations and prognostications.

1. Breaking 1258 confirmed a crash setup with high odds since 1980 to lead to a further 8-10%+ down leg within a few weeks. That projection is 1132-1157.
2. Breaking 1220 confirmed a bear market with a lower low expected after the next significant bounce usually within a few weeks. If that next low breaks 1130, then we'll get yet another lower low after the next multi-week or multi-month bounce.
3. The discretionary spending delayed connection to SPX since 2007 suggests that SPX will form a HUGE bottom around the 1st week of September.
4. My System cycle work suggests the next cycle low will occur September 7th with possible mid-cycle lows around now and late September.
5. Oil spikes especially those sustaining $80-90 have always led to a recession which is now given 25-50% odds by most economists who typically underestimate.
6. Large cycles like Terry Laundry's T-Theory, Peter Eliades Mega-T Theory, Martin Armstrong's 8.4-yr business cycle and the QE1&2 cycles all suggested a MAJOR multi-year top around May/June 2011, and the coming 4th presidential year and 4-year cycle should make 2012 ugly.
7. My Shanghai Midnight indicator was satisfied by a 7% drop after it was triggered a month or two ago, but Shanghai Composite has merely backtested its multi-year triangle breakdown and is poised to confirm a downtrend which should lead to the more extreme losses seen after Shanghai Midnight in September 2008 and other market panics.

Although the bulls could turn things around by turning the 1250-1260 breakdown area into support, I feel very confident, based on the big-picture points and other technicals I follow, that SPX will break the 1168 low within the next few days or weeks. Currently, Dynamic RSI has NOT confirmed that the downtrend from 1347 and actually made new downtrend lows at 1168 which commonly occurs in wave 3s, although Dynamic RSI was on the edge of confirming that at 1215. So, if SPX breaks below 1168 early this week, the odds favor that yet another low will occur in the weeks ahead after a sizable bounce. If SPX breaks higher early this week to 1220-1230+, then that should confirm the completion of the downtrend from 1347 with the next low completing the downtrend from 1356. Regardless of how it plays out, once we get a sizable bounce (not enough as of Friday) and subsequent low, that's where things will get tricky, because we'll have 3 complete waves from 1371 which could be an ABC, 123 or 121 with varying targets and directions. The safest crash target for the next 2 weeks is sub-1168 with 1130-1150 very likely and a brief piercing of 1100-1130 possible.

Update Mon 8/8/11 9:15AM EST
The ECB did not give enough details or show enough German support for the Italy/Spain bond buying over the weekend, and the US did nothing. Futures suggest SPX 1168 will be tested this morning. Pressure will be on the FOMC on Tuesday, but I don't think they'll make a move as significant as a QE3, so the market will bounce occasionally but should remain under sell-the-rally pressure until Europe's plans are solidified which is unlikely until September. Margin calls should have an effect for the first 2 or 3 days this week, since Thursday was the damaging day. One bright spot is that consumer discretionary spending has increased dramatically in the last month thus confirming the 8-10%+ SPX rally that I expect from September. If SPX gets much below 1168, it certainly looks like Friday's 1218/1215 highs (which correspond to the 1220 bear market divide) could become resistance for at least a few weeks, while a rally from 1168+ has a shot at 1230-1250. Good luck.