Wed 8/24/2011. Keep hope alive.

(Update Wed 8/24/2011 3:40PM EST)
New high. Negd. Clear 3 of 5 from 1121. Might need a quick 4-5 into the close (or in the morning) but the rally from 1121 is likely ending around now unless SPX gaps up big in the morning. 1175-1180 was expected to be resistance. Bulls probably need to gap it. One could short here, but it's risky without any confirmations, and the s/t trend is up. There's also a potential small NYAD change at a bullish extreme which favors a bearish reversal sometime tomorrow. And, TICK is high again. Probably best to wait to short, but I might open a 25-50% short position before the close. The 2008 analogy favored 2-3 days of consolidation and this was day 1. Good luck.

P.S. 4PM - I decided to stay neutral. There may be a 5 of 5 up from 1121 still needed OR wave 3 of 5 could extend. Volume into the close was fairly weak and mostly on the last 2 or 3 small down bars so I didn't see an obvious sign of exhaustion. VIX looks like it wants to test its 20dSMA. And, the NYADV formation doesn't look quite right. However, I think a strong ABC pullback is imminent, so I'll probably personally short any gap/run up or the first retracement after a gap/run down especially if I'm lucky enough to see the VIX 20dSMA touched and/or a SPY 5min volume surge and/or a TICK surge and/or negd. Good night. 
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The low thus far today at 1156 was a few pts lower than I expected, but look at the RSI in the chart below. On the 15min chart, RSI 4, RSI8 and RSI12 approximate the appropriate Dynamic RSI parameters if a 5-wave structure from 1121 lasted 1, 2 or 3 days respectively. We're already approaching the end of day 2, so any new high at this point will solidify RSI8-12 as appropriate. Regardless of which RSI we use, the RSI seen at SPX 1141 was broken by about 1pt at today's 1156 low. That's not definitive enough for me to declare the wave structure from 1121 as complete since there is a small margin of error especially on the smaller time frames. And, 1152 was not overlapped, so, as it stands, 1175 could have been a wave 3 high from 1121 by Dynamic RSI and EW rules. However, the deep drop has made negative divergence much more likely if SPX tests 1175 and the lower Fib range for a wave 5 was 19pts (19-53pts) which happens to be 1175 exactly. I have laid out several reasons why there could be another price surge (like we had at 1155) if SPX exceeds the 1170s. I'm expecting either wave 5 or wave 1of5 to end at 1174-1180, and the next drop will need to make a higher RSI low to confirm the latter count. Either way, a retest of 1175+ would put the triangle wave Cof4 count from 1356 and the wave 2of5 count from 1356 on thin ice, since a 5-wave rally off 1121 makes another 5-waves (C?) likely. And, my #1 count preference from last night (wave 4 of 5 from 1371) would be strengthened, but not much will be really clear unless 1208 is broken.

The expectations for the Fed seem to be greater than nothing but less than QE3. The consensus seems to be that the Fed will not make any policy changes (as they are not appropriate at this meeting) but will once again list all of the options and ammo that it has at its disposal to use as circumstances warrant. There may be a minor surprise in those listed options, but they have been pretty well vetted by Goldman Sachs, Fed member speeches and others, and nobody thinks the Fed will do anything other than a gradualist approach over the next couple FOMC meetings barring a financial collapse. So, I suspect there will be something for everybody in the speech and thus we'll probably get some stock market chop that follow the technicals pretty well. Then, after things settle down for a couple hours or days, people will realize that the economy still stinks and the banks and Europe are still in trouble with little chance of significant Fed, US Govt or EU action until mid-September or later, and SPX will head into its September cycle low. That's how I see it. So, if SPX completes 5 waves into 1175-1180 or to 1200+ by Thursday, I'd expect 2-3 days for an ABC pullback followed by a 1-2 wave combo to complete surrounding Jackson Hole followed by a final surge to complete a larger ABC from 1121. Obviously, if SPX cannot retest 1175 by tomorrow or if the Jackson Hole reaction breaks key support, I'll change my tune quickly, but I've got parameters for a plan.

Tomorrow, we'll see Initial Claims, so any surprise there could produce a large gap. Friday will also have the GDP revision, but I wouldn't think a few tenths of a percent in either direction will cause a huge reaction given the tendency for those numbers to be adjusted for many months ahead and given that they are mostly old news. Good luck.