Thu 9/1/2011. Oct/Nov 2008 vs Aug/Sep 2011

(Update Fri 9/2/2011 10:40AM EST)
From 1231, we have 21pts down, then a rally to 1229, then 24pts down, then a 5pt rally and finally a 34pt drop to 1177. Three Fib numbers there. SPX has likely formed a 1-2-3 OR a 1-2-1-2-3 down to 1177 with a probable wave 4 to 1186ish. The most likely Fib-based size for wave 5 is 14-38pts. That gives us a range of 1148-1172. I'd like to see the 1150ish congestion area tested, but 1160ish might be sufficient for the 2008 scenario. Our 1050-1100 target range would be the exact FIBBEWIE target if SPX were to drop to 1150-1160 before making a large bounce. Bears need to press here because indicators are oversold enough to justify a bounce and the drop is not yet an obvious impulse below the 20dSMA. USD is continuing to rally towards its 200dSMA, VIX is rallying towards its 20dSMA and Gold is rallying back near its highs. Those may help us determine the short-term SPX direction. Good luck.

(Update Fri 9/2/2011 9:05AM EST)
Futures suggest that SPX will probably break 1st support at 1187-1191. 2nd support starts at 1175ish with 62% Fibs down to the lower 1160s. I suspect 2nd support (including the 20dSMA) will be tested. With yesterday's daily indicators showing a NYADV zigzag down formation and TRIN>2, today's readings could push SPX into potential bottoming territory. One can never be sure, but it seems like SPX needs to get under the 20dSMA and backtest it like the 2008 scenario in order to sustain oversold conditions long enough to test 1102. Otherwise, my alternate count will have a chance to take hold. It does appear like European bank problems and credit issues keep popping their head above water, and the EU has shown no ability to make major moves until the Parliamentary votes later in September, so a long weekend is a serious risk for traders. Good luck.
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A week ago, I charted and posted SPX August 2011 on top of Oct 2008. The price action was strikingly similar. Algos gone wild? Well, the pattern has continued almost identically. Maybe I would have traded it that way except the last time I did one of these, SPX diverged a day or two later. Go figure. Murphy's Law.

The chart can be seen below. I apologize for cutting off the bottom of the Oct/Nov 2008 chart, but I didn't want to take the time to fix it once I noticed it. I think you get the picture. It sure does look like the Friday jobs report will decide whether SPX continues the 2008 pattern. If it doesn't, we can throw away this analogy. If it does, we can expect something like a drop to 1150ish by Monday, a 1-2 day backtest of the 20dSMA/89hEMA and then a drop below 1102. And, interestingly, the analogy points to a low right around the next FOMC meeting on 9/21. Hmmm. Just something to keep in mind since the computers know everything.

One more thing...I posted on Tuesday that the System would get short below 1212 after a 30% retracement. That setup occurred later Tuesday at 1216. The System stop was 1234 but has since dropped to 1221, so, barring a large gap up, this trade is not likely to be our 3rd 1%+ loser in a row which has happened a couple times during backtesting but not often at all. Good luck.

P.S. The US Dollar has broken out of its tight 2-week range to the upside also clearing its 20dSMA. There is 50dSMA resistance just overhead and the 200dSMA nearly 2% above. In fitting with the 2008 scenario, it seems likely that USD will test that overhead resistance. SPX may take a breather when that happens. I had about 5% of my account in cash (because even when I go fully short I usually buy in rounded quantities and occasionally have accrued interest, clearing funds etc meaning fully short is 90-100%), so I went ahead and added another 5% to my short position at 1222 and 1209. It only raised my cost-basis up 1pt to 1187 though. Personally, if SPX drops to the 1150s, I will likely lighten up 25% for re-entry 5-10pts higher on a backtest of moving averages. If SPX rallies hard tomorrow, I may close my position on the following dip depending on the rally strength. Good luck.