The Germany constitutional vote regarding bailouts could be a market mover tomorrow, although most people expect an approval with limitations. DRSI did not rise high enough to confirm today's reversal was a wave 2 retracement of 1231-->1140, so I can envision about 5 counts from uber-bearish to another ABC rally above 1231. The truth probably lies somewhere in between, and I'll have a MUCH better idea based on the US open tomorrow if we gap one way or the other. There are Fib clusters at 1165 and 1175. We just need to keep our eyes on the big picture. Tomorrow is the bullseye System cycle low date with the window extending into the FOMC meeting. Do you remember this 2008 comparison chart? SPX hit the lower channel line today and back-tested the previous upper triangle line. Good luck.
(Update Tues 9/6/2011 12:20PM EST)
Another decision point here at SPX 1155ish. 15min DRSI21 is now exactly at the same level seen at SPX 1186/1178 which were potential wave 2s. If SPX rallies much higher on a 15min closing basis, the odds highly favor 1231-->1140=5waves=1of5ofC/3 from 1371. Otherwise, the morning bounce was just a wave 4 with more downside over the next couple days. Having said that, I don't want to get pulled down into the weeds. The big picture is SPX bounced off its lower channel line but is in a confirmed downtrend seeking a cycle low within the next couple days or couple weeks. Good luck.
P.S. I don't know which way SPX will go, but, if SPX 1156ish marks the top of today's bounce and SPX trades below 1140, it is likely that SPX 1231-->1171=60pts was a series of nested 1-2s. Unless the next SPX low makes a lower 15min RSI, it would be likely in that scenario that SPX would drop w1*(.6 to 1.6) which would target 1060-1120. If SPX stops around 1120, I'd bet only 1of5ofC/3 from 1371 finished. If it drops to 1100, I'd say our 1080-1100 target will form the bottom unless RSI makes a lower low indicating a wave 3 is still active. If SPX rallies above 1156 today with higher 15min RSI, then we'll need to determine if SPX is in 2of5 as I proposed above or in yet another nested wave 2 which would not likely exceed 1170ish. If VIX stays above its 20dSMA and TRIN stays below 2 like they are now, I favor the more bearish scenarios until USD hits 76.30-76.75 (200dSMA and key pivot) and VIX pierces its upper BB20.
(Update Tues 9/6/2011 10:15AM EST)
I forgot to mention that discretionary spending has stabilized at a "growth" level for the last month or so after skyrocketing. If it truly leads, we should start to see some better (not great) economic numbers over the next few months. SPX is at a decision point here. If I test the 3-day drop against DRSI (15min RSI11), it actually shows posd and a possible 5-wave low at 1142ish. If I test DRSI assuming a 5-6 day drop (15min RSI17-22), today's price low was also an RSI low. If SPX drops below 1140, it is either finishing wave 5 of C/3 from 1371 at 1070-1100 OR finishing wave 1 of 5 of C/3 above 1102. If SPX holds 1140, it will likely bounce in wave 2 of 5 of C/3 to the 1187 OEW pivot area over the next 1-2 days. I narrowly missed my partial profit-taking objective at 1142, but now that we've already seen a 10pt bounce, I'm going to stay put and see which pattern plays out. If SPX bounces again from 1140+ (especially if we get an intraday lower low), the momentum will have been lost and I'll try to take partial profit on a pullback around 1150. Otherwise, I'll let my position run for a while. Good luck.
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I very often reference consumer discretionary spending as a leading indicator. It has projected a low for this week in September +/- 1 week, and it has done so for 3 months. That's leading. You also know that my System has been projecting a cycle low on September 7th +/- 10 trading days for nearly 2 months, and we recently narrowed that down slightly to Sep 1-21. Although I've tweaked my preferred EW count, the structural call for a new low in September has remained for weeks. So, SPX should bottom in the next 2 weeks, right?
Well, there is also a convergence of evidence for a low in the first half of October. On my 3yr weekly projection chart (see links to the right), there are 2 cycle lines ending in early October. Terry Laundry has another such cycle low on his free public charts. The 1-year cycle low may still be in front of us. I've also heard about a 17-wk cycle low in October. And, my System's mid-cycle low as depicted in red horizontal lines on my daily chart points to a low in the last few days of September, but that cycle has extended the last couple times, so I'd say it favors Oct 1st or so. So, SPX should bottom in early October, right?
Which is it? September? October? or both? I suspect both, but the question becomes will it be a higher or lower low. Keep in mind that none of the October cycles include my primary System cycle or my spending indicator, and my crash and Shanghai Midnight indicators have reached their targets along with the H&S breakdown at 1258. The market is getting very oversold. However, also keep in mind that the US Dollar has possibly finished its 3-year bottom with a 1+ year surge ahead of it, and longer-term cycles like the 4-year cycle, the Presidential cycle, the decade cycle, the Kondratief cycle, the Armstrong cycle, the T-Theory symmetrical "cycle", the 16-18yr commodity cycle, the demographic cycle etc etc etc all suggest that the stock markets will be under pressure for at least another year and probably several more years.
So, how do we put it all together? For a possible clue, I took a look at the spending cycles on my weekly chart since 2007. In 2007-2009, SPX always rallied hard for 8-9 weeks after a spending-projected SPX bottom. However, in 2010 and 2011, SPX only rallied 5-6 weeks before rolling over for a few weeks to retest the lows. SPX tested 1040 in August 2010 after making a low at 1011 in June 2010. SPX tested 1258 in June 2011 after making a low at 1249 in March 2011. Those were spending bottom retests. Obviously, the former retest made it to new highs, while the latter one did not. The trend appears to be set to me. Each spending cycle low is leading to less and less oomph in SPX. The next SPX bounce is highly likely to fail after a few weeks, retest the low and then make a final dead cat bounce before rolling over.
Putting the puzzle pieces together, here is the likely high-level path for SPX over the next year.
1. SPX bottoms between now and the FOMC meeting on September 21st at either 1070-1100 or 1020+/-. Sub-956 is possible but unlikely at the moment.
2. SPX rallies 10%+ for 2-4 weeks in an A wave into October.
3. SPX retraces 50-80% of the low bottoming in October in a B wave. If a new low is made here, the ABC count will be reset and I wouldn't expect a much lower low.
4. SPX rallies 10%+ for 1-3 months in a doomed bear market bounce.
5. SPX starts its next downleg in Dec-Feb.
6. SPX breaks its Sep/Oct low in early-to-mid 2012 causing a multi-month panic to test the 667 low from 2009. At this point, we'll need to evaluate whether SPX is completing a large wave 3 or C from 1371 and narrow down our time&price targets.
Futures suggest that SPX might break the lower channel line at 1140-1141 this morning. If so, I'll take partial profits at 1120-1130 and reload at 1130-1140. If not, I'll take partial profits around 1140-1142 and reload about 10pts higher. The System remains short. Good luck.
S2 thanks for the intraday update. Much appreciated!
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