Wed 8/24/2011. Counts are solidifying.

(Update Fri 8/26/2011 10:10AM EST)
Bernanke disappointed the market a bit. System resistance drops to 1167. There was a SPY volume spike on the subsequent drop to 1135, much like the last FOMC meeting, so there could easily be a strong reflex rally. Count #2 looks improbable now, but the drop from 1191 can be an ABC (with C=A at 1136) so the same technical criteria apply. If the next rally can get back above 1167, we'll have 2 possibilities as detailed below. If we see a SPY volume surge and failed rally in the 1150s (or even 1140s) with a new low, then the 2of5 count becomes preferred. 1156-1167 is no-man's land where anything is possible. Gotta go for a while. Good luck.

P.S. System took further profit another 1% lower at 1140 and reloaded to 100% short at 1156 with stop at 1167. No man's land already reached. It's crazy when volatility is so high. All counts are still open, but the rocket shot from 1136 to 1159 likely requires a pullback and 2nd leg up. That's when the rubber should meet the road for the counts. I wanna say the triangle is looking good given the lack of Fed jaw-boning, but we need to see how SPX acts if it hits the 1160s. Gotta get some work done.

(Update Fri 8/26/2011 9AM EST)
Despite the GDP revision coming in around market expectations, futures suggest SPX may test the 61.8% Fib retracement of 1121-->1191 at 1147.67 which is on the lower end of 1150ish price-volume support. The System is short from 1169, and System resistance/stop will drop to 1167.42 if SPX closes below 1159 at 10AM. Due to the Fed risk (and the fact that the System does not usually trade in front of FOMC days and allows judicious profit-taking), I will go ahead and take some more System profit after the open thus ending up with a 50% short position and awaiting a re-entry point.

Of course, the big news of the day will come at 10AM with consumer sentiment at 9:55AM. Let's look at a couple possibilities. If SPX can manage to hold 1152ish, one could possibly count the completion of a small wedge down from 1167. The depth of this drop has knocked Count #1 (1121 ended wave 3 of 5 from 1371) back a little bit, but it is still alive with its first real wart. If we see SPX rally this morning from 1140+ to 1155+ with confirmation above 1167, we are primarily left with 2 probable counts.
1. Count #1 with a C-wave rally to 1191+ and likely 1208+
2. Count #3 (triangle wave 4 from 1356) with a final "e" wave below 1191 and likely to 1167-1177.

Obviously, the distinguishing factor in those 2 counts is the 1191 line in the sand possibly with clues before that as to the strength/DRSI of the rally.

On the other hand, if SPX reaches the 1130s, Count #2 (1191 ended wave 2 of 5 from 1356) becomes very probable with confirmation below 1121. Even though I think SPX is heading below 1100 and likely to 1011-1019 soon, everybody needs to know that the downtrend is likely nearing its end and EW is no panacea. I don't think it's likely, but, as an example of a crazy possibility, it's theoretically possible that 1208 ended an A/W wave followed by a 5-3-5 zigzag ending at 1102-1130 with a rally to 1208+. The System should keep us out of serious trouble for a situation like that, so my plan is to continue shorting until the System tells me to get out with a resistance break or strong daily reversal indicators. We are now well within the window for forming a System cycle low, so any bottoms from here to the middle of September can be much stronger and volatility should remain high for at least another week or two. Good luck.

(Update Thu 8/25/2011 4PM EST)
Did I say counts are solidifying? Not! LOL
SPX broke 1156 unconvincingly and after the initial morning downtrend, the action was extremely choppy with a slight downward bias into key support at 1150-1156. Is the intraday pattern a double zigzag, a series of ugly nested 1-2s, a triangle, a H&S...? Wish I knew. I guess you could say I'm clueless, open-minded and waiting for the market to throw me a bone. Good luck.

BTW, who knows if the October 2008 analogy will continue but the last 2 days of chop with a brief pop mixed in to the 20dSMA is nearly identical just as the previous 8 days were.
http://s2trading.blogspot.com/2011/08/mon-8222011-spx-blastoff-imminent.html
 

(Update Thu 8/25/2011 3:30PM EST)
The System will stay short into the close. My understanding is that Bernanke's Jackson Hole speech begins at 10AM EST tomorrow, but I don't know if the speech is released to the press earlier. Do you know?

The Q2 GDP revision is announced before tomorrow's open, but almost everybody is expecting a downward revision (many say below 1%) so it's hard to imagine too much disappointment especially when the numbers aren't that reliable anyway. Once again, I'm leaning towards staying flat into the close since I don't think I'll miss a big down move on an overnight gap. The market tends to drift sideways or chop higher in front of Fed news.

In terms of a trading plan, Count #1 is still my preference but the System is short and SPX has not been able to exceed 1169 yet. So, it's a very tough call. The best bet might be to stay flat OR get partially short and then either add or subtract based on the market reactions. I'm sorry I can't be more forthcoming than that. If I had gotten short at the open, I'd probably stay 50-75% short like the System is, but opening a position around 1160-1165 seems too risky for my taste. Corrections are difficult to trade even when you're on the right side. I'll risk missing a swift down move to avoid nearly equal odds of a swift up move. Good luck.

(Update Thu 8/25/2011 1PM EST)
The System entered short at 1169.06 after a 2-candle break at 1164 (I mistakenly said 1161 but the result was the same) followed by a 30%+ retrace of the 1191 pivot from 1159.79. The System took 25% profit at 1157 due to 1156 support and 1% partial profit-taking. Based on the following analysis, I would like to exit that trade for a tiny overall profit if SPX reaches 1170, but the System currently places resistance at 1191 so I'll just lighten up to a 50% short position if SPX reaches 1170.

The slight new DRSI high this morning and subsequent break of 1156 tells us a few important things. SPX 1121-->1191 was a likely 5-wave structure, but there is some chance it completed an ABCXABC which can no longer make a new high since the 1156 X-wave was broken. In my book, any rally above 1191 will now officially eliminate counts #2, #3 and #6 below. We no longer need to wait for 1208. Also, since SPX has made a 3-wave move thus far today (1191-->1161-->1169-->1156), we have lines in the sand at 1156 and 1169 that will virtually eliminate certain counts. Count #1 is still looking very good, and 1156 was a common previous degree wave 4 target and a 50% retrace of 1121 making it a great target. I'd expect 1156 or 1169 to be broken by end of day, so I'll deal with the counts when that happens. For now, the System is 75% short and Count #1 (which is bullish to 1191+ and probably 1208+) looks fine. Good luck.

(Update Thu 8/25/2011 10:25AM EST)
Still waiting. Not so interested in a short at this exact moment, because SPX already reached my target area, there is a SPY volume surge on the downtrend and we have a potential ABC. Missed opportunity. DRSI made a slight new high within the margin of error and then SPX overlapped 1175, so SPX could be correcting a 5-wave move for 1121-->1191 OR forming an ABCXABC which still needs the final C-wave high. The System support actually stayed at 1156 due to no hourly closing high at 10AM. A long trade from 1160-1165 might actually be a good bet for a few hours (with stop below 1156) but everybody needs to square their positions according to their own plan and risk tolerance before the close in preparation for the Jackson Hole and GDP revision news in the morning. Good luck.

(Update Thu 8/25/2011 9:45AM EST)
5min DRSI made a new high. 15min DRSI did also, but only by 1pt (due to the strong pullback after 5mins) which is in the margin of error and wave 5s do occasionally make slight new RSI highs. I don't think this rally is sustainable given the technical setup and is very company-specific. I'll re-evaluate the counts in a little while, but my initial feeling is to judge this rally as the completion of wave 5 up from 1121. 1190 would have been a good short, but I wanted to wait for my indicators. I'll be looking for a good short entry this morning (probably 1180+), because a 30-50% retracement of 1121-->1191 would support a pullback to 1156-1170 where there is technical support as described earlier. System support is at 1161 too. Good luck.

(Update Thu 8/25/2011 9:25AM EST)
Warren Buffett saves the day...or the hour...or the week. The SPX 20dSMA will fall to approximately 1188 today. That should provide resistance. The 89hSMA/EMA could now provide some support at 1160-1170 as well as the 200wSMA at 1152. If I don't see a new 5min and 15min Dynamic RSI high after the open, I will open a short position and plan to take partial profits on that position about every 10pts down due to the supports mentioned. If I do see new Dynamic RSI highs, I will likely wait for things to play out a little more. Good luck.
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Here are the 5 counts I posted in order of preference for the 1121 pivot as SPX began bouncing there.
(1) a truncated 5 of 3 from 1371
(2) 1 of 5 from 1356
(3) b of 4 in a triangle/flat from 1356
(4) a truncated 5th of C from 1371 and
(5) a truncated 5th of 1 with 1356 as a truncated bull market to


Daneric has #2, #3 and #5 charted here...https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_4hp3znJph9Vk1-4zJFcX7HsQi-kSoR7M047jA5jM4q4-ag-jXswqDYoMN4x0mL1EQxL_HeyFR1NRKCfu5aOvl-gE6Xa7PnGbdRPFeDGn3CcCWodKOZRcOnmJbX5h2xn6BdkxM2jqTls/s1600/spx60.png. I still have not seen my #1 preferred count being used anywhere, but #2 and #3 have started popping up. There are actually other counts I can come up with but they are all just variations or superfluous.


All 5 of my counts are still technically possible, although, as of tonight, count #1 is the only one without large warts including Dynamic RSI and cycle considerations. A triangle or wave 2 should not have a 5-wave leg to 1179 or so, and the bullish counts don't fit my spending and System cycle analyses. If SPX makes a large gap and crap on Thursday, that would add considerable support to counts #2 and #3 because RSI would likely make a new high allowing an ABC count from 1102. If SPX severely pulls back on Thu/Fri without rallying much above 1180, count #1 will remain on the top of the list. However, count #1 calls for an imminent B wave down and C wave up, and the B wave should be relatively weak, so any drop below 1150 will be troubling. So, my plan is easy. I am trading count #1 with the help of my System and indicators unless I see a large Thursday gap up with higher RSI high OR a drop much below 1150.

My favorite scenario for Thursday would be either a small gap up OR a small gap down that gets filled (or nearly filled). I'd go 100% short expecting a 15-30pt drop. Then, I'd lighten up in front of the Jackson Hole announcement and GDP revision. I'm pretty convinced that Bernanke isn't going to leave the market hanging (he basically told the world what he'd do before becoming Fed Chairman, and he has done so every step of the way and is highly unlikely to stop now), but I'm also pretty convinced that he doesn't want to go too far right now with inflation rising, diminishing ammo and dissenting members. So, I'll plan out my strategy in advance for all possible reactions, but I'm expecting a choppy head-fakey response followed by a final rally on false hope that fades quickly. I'll try to formulate a basic plan before the Thursday close with consideration for Thursday's action. Good luck.