(Update Fri 9/30/11 4PM EST)
I would normally take 25% risk off the System heading into a weekend especially with huge gains from the cost basis at 1194 and some oversold conditions, but all my analysis points to sub-1102 next week, and I am not aware of any expected EU/US news over the weekend after they used a lot of bullets in the last 2 weeks with the parliament votes, Operation Twist, Obama refi program, EFSF 2, rumors galore etc. And, the first scheduled economic news is ISM at 10AM Monday. So, I think risk favors a bearish position. One thing that normally is bullish is the huge 5min SPY volume surge into the bearish close, but I don't find it reliable enough to use on its own and I would guess its not as useful at key breakdowns/breakouts which I consider 1139 to be since it was defended 8-10 times in the last couple days.
We didn't quite get the 40-50pt nasty day I was expecting, but we did get 29pts and it could very well carry over to Monday morning. The last potential nested wave 2 could be counted at 1143 or 1146. 27+pts down from there would make it the largest straight down leg from 1196, and that would target 1116-1119 at a minimum. If SPX gaps down 10+pts on Monday, I'd expect an 8-12+pt intraday bounce possible near 10AM and then a series of wave 5s lower to the 1090s. After I've seen the weekend news and ES futures Sunday night, I'll try post a more detailed plan. I think only 1 of my 9 bottom indicators below triggered at the close (TRIN>3) although I said I preferred TRIN>4-5 so even that was on the weak side for a bottom. VIX and USD got close but no cigar. A large Mon/Tues drop that stays red into the close should trigger a majority of them. Good luck and good weekend!
(Update Fri 9/30/11 3:05PM EST)
That makes 8 or 9 times that SPX has bounced 5+ points after hitting 1139-1142. It's being defended. Not sure if bears can break it before the close. The downtrend lines are now at 1145-1147.
(Update Fri 9/30/11 1:20PM EST)
The uptrend line that was just broken and the 2 downtrend lines from 1196 and 1176 cross each other at 1150-1152 before 2PM. So, there's a good chance we'll get a decent market reaction in the next 30 minutes. Of course, a reaction upward could still get stopped at 1154-1161 and a reaction downward could still get stopped at 1139-1144. So, we're only talking a 5-10pt reaction I guess. Alright, I need to do some other things for a couple hours. The main focus is on 1140 and 1160 and we'll see if Mr. Market can keep things in that range for weekend suspense. Good luck.
P.S. I hate to say it but as the day plays out I see the possibility of 1140-->1160=A, today's triangle=B and C=A at 1165-1175. Of course, it can also be the nest 1-2 scenario which is more immediately bearish. I'm leaning bearish intraday mainly due to time running out on bears making a sub-1102 low within the next few days (possibly Mon/Tues), but it wouldn't be impossible for SPX to rally to 1165-1175 and then collapse early next week. That triangle scenario would be eliminated if SPX trades below 1143.42 and would be on thin ice below 1144.85. The key is to keep our eyes on the big picture which is looking for bottoming signs between now and next Friday.
(Update Fri 9/30/11 12:50PM EST)
SPX just tested its uptrend line from the morning low at 1141 for the 3rd time at 1147.73. A break below that could get the ball rolling for bears, but bulls still have a shot here. And, even a breakdown could backtest that trend line to allow Mr. Market to drag out today's range further.
(Update Fri 9/30/11 11:45AM EST)
SPX has now reached 1154. Dow is approaching a gap fill. VIX and USD are losing steam but still higher. Although I'd like to draw a line in the sand at 1160.40 and favor a WXY or wedge into 1153/1154/1155, there is always the possibility of an irregular flat or other such pattern (stop triggering), and the System stop remains at 1167 until 1142.68 is closed below on an hourly basis. There has been some positive divergence on the lower level charts supporting the intraday bounce and a consolidation prior to breaking 1139.93 can be a good thing for the bearish case, but bears will need to break 1139 with gusto to eliminate the posd and confirm the wave 3 setup. Mr. Market is doing his best to hold things in a range as long as he can for month end OPEX, but any options traders holding out until the last minute could capitulate if SPX breaks 1140 or 1160 so be prepared. Such a capitulation, albeit smaller than on a mid-month OPEX day, could easily carry the market 10+pts very quickly, but then you'd get profi-taking from the winning side to counteract that. Will be an interesting lesson to learn if 1140 or 1160 breaks. Maybe Mr. Market can keep things in that range until Monday. Time is running out for bears. Good luck.
(Update Fri 9/30/11 10:45AM EST)
The nested 1-2 idea and momentum will look bad if SPX gets much if any above 1153. So, the imminent mini wave 3 scenario can now use a minimum projection of 1153-27=1126 with 1114-1121 likely and then a few choppy 4-5s lower to the 1090s. If that occurs, we can talk about the likelihood of THE bottom versus 1 or 2 more lower lows. Today is shaping up to be the 40-50pt nasty day I expected sometime this week but it could carry into Monday morning, and SPX must break 1139 first.
It's purely anecdotal, but I am hearing more and more chatter about SPX 900 and SPX 1000 on TV. Although that is possible with a Greek default, you must keep in mind that VIX, TRIN, ISEE and other indicators are near all-time extremes, so you would be betting on the exact timing of a very rare event in very oversold conditions. And, given that the Fed and US Treasury have coordinated with Europe in the last 2 weeks and now most parliaments have voted for the first EFSF plan (admitting it needs to be bigger soon) and most austerity plans have been put in place, it seems highly unlikely that things will fall apart at this particular moment. The credit markets are dubious right now, but a stock market and sentiment bounce along with some EU/US political action over the next couple months could easily pull them back from the cliff. Of course, once things don't get that much better and the US budget agreement looks weak and the holiday cheer ends and the 2012 presidential election kicks into high gear and people decide how to invest for 2012 after a 100% rally and huge 2011 scare and European austerity really sets in and the China miracle shows more signs of danger, that's when I think things will get pushed over the cliff. Sure, SPX 1000 or 900 is possible in October (it's a commonly bad month with significant bottoms), but don't get sucked into the hype. If SPX swoons to sub-1102 in the next couple days, the bearish chatter will increase. They'll tell you a large consolidation breakdown is disastrous, but you can look at the last 12 years of charts as easily as I can and see that is not usually the case. Mr. Market wants your money and your shirt and your house. Be conservative, trust your technicals and take some profits when you can. Good luck.
(Update Fri 9/30/11 10AM EST)
SPX has not broken Thursday's low. Thus far, I interpret the gap lower and choppy bounce as another nested 1-2 wave combo (that makes 4 or 5 at this point), and wave 1 was 18-27pts once again. I'm expecting a 27+pt internal wave 3 at some point and maybe that will happen if SPX breaks below 1139.93. If it doesn't happen today, I will be a little surprised because time is running out, but I'll take it as it comes. Currently, 1150-27=1123 as a minimum internal wave 3 target with choppy 4-5 wave combos lower. Now, I see SPX made a 3rd intraday low so maybe there's a tiny wedge and SPX will rise above 1150 intraday before falling in wave 3. Good luck.
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For the 3rd day in a row, the price-volume SPY surge in the last 30 minutes was reversed by a gap open. That usually works but not always. The System remains 100% short with an entry point at 1188, cost basis around 1194 due to position trading and a stop at 1166 and falling, so I'll probably let the position ride at this point until 25-50% profit-taking in the 1120s or exiting at 1167.
Before I discuss what to watch to nail a bottom, let me summarize the case for a bottom. As I've repeated a million times in the last 6 weeks, my System's mid-cycle low was projected for 9/29/11 but it has run 3.5 days long the last 2 times AND there are 4 longer term cycles bottoming in early October AND discretionary spending (used as a leading indicator on my weekly chart) projected a significant low in early September probably followed by a retest a few weeks later. So, my best guess has been an ultimate price low in the first week of October, possibly ending on the day before or the day of the October 5th jobs report. The recent all-time low in ISEE and the 20dSMA in TRIN projected a bottom within 2-7 trading days from Wednesday. Many markets structurally (and EW-wise) look like they need 1 more low including gold, copper, Shanghai Composite, Nikkei etc while USD looks like it needs 1 more high. There were Sell On Strength readings in the past week. And, my "last leg" theory using about a dozen cases since 2007 projects a low within 14 trading days of the 1220 top (8 days ago) and 1.3%/day lower on average. I'm probably forgetting a few supporting statistics from my previous posts, but every one of those supports an imminent low within 6 days below 1102 and possibly to the 1050s or even 1010s although I'm leaning towards the 1090s or 1050s.
Here are some things to watch that should indicate a bottom is happening on that day or possibly 1-2 days later.
1. USD makes a new uptrend high above 78.86 probably to 79-80. USD futures indicate 78.43 right now.
2. Copper makes a new low below 3.072. Copper futures indicate 3.184 right now.
3. TRIN > 3 and preferably TRIN >4-5. By itself, this usually indicates a short-term bottom is imminent but given the cluster of recent readings and the high 20dSMA for TRIN historically, the next TRIN spike should lead to a bottom within 0-3 days.
4. NYADV at an extreme low preferably for 2-3 days in a row with at least 1 day below 500 forming a hook, zigzag or scissor formation.
5. Shnghai Composite breaks 2319.73, its July 2010 low.
6. Gold approaches 1535. Gold futures are at 1614 now.
7. Nikkei approaches its earthquake low at 8227.63 or closes below 8359.70. It closed at 8700 today.
8. VIX reaches 43.18-45.40. VIX peaked at those levels on at least 8 days in the last 2 months. It reached 47-48 for a few hours.
9. CPCE (equities) above 1. CPC has been high recently but that is for the same reason that ISEE has generally been low. "Smart" money has been very bearish up until the last few days while "dumb" money has been fluctuating around neutral, but the 2 combined have been bearish. In the last 2 or 3 days, that has changed which tells me smart money and dumb money are swapping places. Still, I'd like to see 1-2 more readings of CPCE above 1.
10. ??? might be more to come so stay tuned
I don't think every one of those needs to occur but a majority cluster would be a severe warning of an SPX bottom within 0-3 days. Good luck.
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