Mon 9/12/11. 2008 vs 2011 Revisited.

(Update Tues 9/13/11 4PM EST)
The System was stopped out at 1176. It may have been a better decision to stop out on the small gap open above resistance which would have saved about 1% of profit, but the overall trade still pocketed 27pts (~2.3%) from 1193 which was half of the potential down to 1136. The System was up about 15% in August and 6% thus far in September not considering any leverage. Not bad considering the volatility.

System support rose to 1165.46 at the close, and a new short position will be opened below that. If there is a gap down to 1165 or lower (1% below 1176), the System will wait for a 30% retrace before entering short although I won't let it miss by 1pt. If SPX rallies to the OEW 1187 pivot tomorrow, I will start considering taking the System out of short mode into neutral or long mode. The System would be in a bullish configuration if it gets back above 1204 since that would clear 3 daily candles, the 20dSMA and a 62%+ retrace of 1231.

SPX may have wedged into the close with possibly one more slight high needed, but we know ascending triangles can lead to continuation too and SPX closed below some key MAs/Fibs so a large gap up will need to be respected if it's not immediately reversed. SPX did close right in our target zone for this rally. TICK closed above 1000 which usually occurs at rally initiations or tops, and NYADV made a little bigger move than I'd normally consider bearish but it's overbought and also normally happens at rally initiations or tops. However, occurring on day 2 is bearish more often than not. VIX has fallen back near its 20dSMA which is also often a rally or failure point. US Dollar has fallen back to its breakout level at 76-77. DAX has recovered from its quick trip through its freefall zone and could be done or could easily zip through it again. Our time window for a low is narrowing as the FOMC meeting is approaching. OPEX might be holding things up a little, but it sure seems like bears need to start a reversal tomorrow for us to hold on to my preferred price and count projections. Good luck.

(Update Tues 9/13/11 1:20PM EST)
Midway. At 1170ish, SPX is about halfway between its recent 1204 and 1136 pivots. SPX may still finish a C wave to the Fibs/MAs at 1174-1184 [C=A*(0.38 to 0.62) at 1176-1184], but the System went ahead and reloaded short here at 1171. It might temporarily get stopped out at 1176. Buckle up for safety, because the last big drop should start within the next handful of trading hours, and, if it doesn't, there might be a violent short-covering event. There's word that France, Germany and Greece are meeting and possibly announcing something tomorrow, and Geithner is joining the fray too. US Dollar at 76.84 is backtesting its breakout above its 200dSMA at 76.21 and previous high at 76.72. Could be a strong bounce or failure within hours. Buckle up.

(Update Tues 9/13/11 12PM EST)
The System took 25% profit at 1162 which is essentially where it reloaded short near yesterday's close. The System will reload 100% short at 1172 and stop out at 1176. Based on the daily indicator action thus far today, it looks like a sub-1170 SPX close will produce a small NYAD change on the 2nd day of a rally, and that is typically bearish, sometimes violently bearish. Both ISEE equity and index traders are slightly bearish today. VIX is hanging in there at 38 just below the previous 40-48 peaks. So, there is still some fear in the air but off extremes after a month of consolidation. We are at a point in the time cycle and price downtrend that the next panic down move should set the low. It is fairly common in such situations to trade on extreme fear for 2-4 days, but it's not easy to know real-time, so I'll be using my date and time targets as well as my System and indicators to take profits and conservatively reload. And, of course, I'm prepared to change the outlook if SPX rallies hard from here. The Monday reversal can qualify as a weak System bottom, but most evidence suggests otherwise.

Retail sales will be released tomorrow before the open. The estimates are very low and the consumer discretionary indexes have been great for 2 months and we just had back-to-school, so I'd say there is a good chance for a positive surprise. But, Best Buy and others recently have indicated waning sales, so who knows. And, maybe retail sales that are good but not great would merely strengthen the dollar and lessen the likelihood of QE3 thus pressuring SPX. It's a warped world, so I'll focus on the technicals into the close. Be careful and good luck.

(Update Tues 9/13/11 10AM EST)
As I discussed earlier, the small gap up above System stop led me to raise the stop to the next pivot which is at 1176. The rally from 1136 now looks like 5 waves. The pattern and reaction late yesterday looks and smells like a wedge into 1136. So, it's safest to expect a 5-3-5 (ABC) from 1136. That means we should see a 20-50% retracement from the 1170s and then a final rally much like the 2008 analogy. To provide some buffer for the System, I'll reduce 25% of the short position when SPX pulls back 10+pts and reload on any retest of wave A, but the System does not rely on EW except to allow for sensible 25-50% profit-taking, so it may get stopped out if the ABC goes high enough and then look for a quick 2-candle re-entry. And, ES futures do not look like 5 waves so it's not so clearcut that SPX is rallying in wave A. Personally, I am back to 100% short after reloading at 1161 late yesterday and 1168 this morning, and I will use a looser stop than the System above all the key pivots and MAs at 1184. Good luck. 
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September 12th 2011 possibly matches November 13th 2008. On that day in 2008, SPX pierced a 1-month low and then rallied for 3 hours into end of day like we did today. The following day, SPX gapped lower, retraced about 40% of the rally and then made a slightly higher high before falling for 5 days. The gap down may not occur, because the corresponding 2008 rally retraced 50% of the top ending at the 89hEMA and just shy of the 20dSMA. Today, the 89hEMA/SMA and 20dSMA reside at 1175-1180 with the 50% retrace at 1184. So, if the analogy holds, SPX should stop rallying at 1162-1184 on Tuesday and then drop to a much lower low into the following Tuesday. However, the analogy now almost seems to favor our higher target of 1080-1100........unless today was actually November 11th 2008 in which case SPX should drop to 1100-1120 in the next 2 days, rally for a day and then fall much lower the following week.

I added 2008 and 2011 analogy charts to my public chart list and combined them below. I applied my variation of a Wolfe Wave to the 2008/2011 triangles and that also seems to indicate a low next week around 1100 unless the low extends quickly tomorrow. Regardless, most evidence points to a low by next week, so despite becoming more convinced that 1080-1100 won't hold, it may very well do so if we haven't broken it by next Monday. Good luck.