Let's see how ISEE closes today, but the "smart" index traders are currently bearish and the "dumb" equity traders are extremely bullish. Since April 1st, the current 252 equity call/put value has only been exceeded 5 times. 4 of those 5 times led to immediate multi-day downtrends including several key tops. 1 of the 5 cases occurred on day 2 of the rally out of the initial wedge down from 1371, and it led to 20 more points in 2 more days before wiping out all 4 days of gains in 1 day and then continuing much lower. Having said that, such extreme bullish values had minimal effect on SPX during more bullish time periods. I'm still inclined to think this supports the triangle scenario depending on how other indicators shake out. SPX just retraced 62% of 1231 at 1195ish. See ISEE image below.
(Update Wed 9/14/11 2PM EST)
Much ado about nothing on the Merkel/Sarkozy meeting but SPX made its bullish move beforehand. The System was stopped out for a 1.6% loss still making a September a 4.5% winner thus far. I will keep the System in short mode for at least 1 more attempt as long as SPX is below 1204. System support is at 1176 currently.
1-5min DRSI (which is not as reliable as the larger time frames) suggests that the rally from 1162 to 1188 thus far is still a single structure likely in a mini wave 3 which means it could push up closer to 1194-1204. However, the same DRSI shows that 1136-->now has not made a higher RSI high which is needed for an ABC to be possibly considered as a 1-2-3. So, 1136-->1188+ still looks like an overall corrective structure ABC/WXY nearing completion (even more so in ES futures). Still, the heavy retracement of 1204 into what should have been the heart of wave 3 of 5 down makes a sub-1102 low into September 21st look very unlikely.
Technically, my preferred count is still alive, but, using the preponderance of evidence, I'm bumping it back to an unlikely alternate count as updated on my daily chart. I am tentatively preferring the triangle count with a pullback to 1150-1170 depending on the current rally's high, but the 1231+ rally scenario is possible and I'd like to evaluate the indicators after the close and into tomorrow to get a better feel for what's happening. I haven't charted it, but the wedge scenario from 1231 with a final leg piercing 1136 is not dead unless SPX reaches 1200 but that's probably just a variation of the 1231+ rally scenario anyway. Unless SPX just blasts off through 1204, the 1158-1163 lows of the last 2 days look like good price magnets and what happens between now and then in the price and indicator action will hopefully clue us in to what's next. Good luck.
(Update Wed 9/14/11 12PM EST)
Tough to say, but this last hour rally seems like we're in the following wave from Monday's 1136 low: either ABC or AB1. Nasdaq made a new intraday high. SPX got close enough. Obviously, the latter count could allow SPX to rally to 1195ish (the 62% retrace of 1231), and that would make my preferred count much less likely. Let's see what happens this afternoon after the Merkel/Sarkozy announcement.
(Update Wed 9/14/11 10:30AM EST)
The System has re-entered short at 1169. SPX traded down from 1180 to 1163 breaking 1165 support more than 1% from the high, so the System waited for a 30%+ retracement. Apparently, the Austrian parliament says they don't have the votes to expand EFSF. The likelihood that ALL the European parliaments approve a big-enough bailout/backup plan in the next few weeks seems less and less likely. It sure looks like it will take a disaster to make them act just like it did here in the US. Human nature. But, the problem is that they are not politically unified or even fully financially unified like the States. We'll set our System stop at 1187 for the time being (.5% above 1180.41 rounded), and we must be prepared to get stopped out on the Merkel/Sarkozy news. I think the risk/reward is favorable, but I'll be quick to take 25% profits as targets are reached that would fit our alternate scenarios. I edited my earlier post to reflect the correct 61.8% retrace of 1231-->1136. Good luck.
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It appears I missed another wild ride in overnight futures. 2.5 EU bank downgrades instead of 3. Retail sales were better than expected but flat, while PPI was flat. In my eyes, that merely supports what we already knew: the economy stinks and the mostly-baked-in Operation Twist is getting crispier.
Let's consider the technicals instead. The bigger picture is still favoring a final down leg over the next week followed by a higher/lower low around the first week of October +/- and then false happiness into mid-Dec/Jan. SPX looks like its wedging yet again and a retest/pierce of 1176 would be perfect. The US Dollar looks like its wedging into a wave 4 low. We'll know if SPX gaps and craps today.
Although all my technical work still favors another swift down leg, I recognize that time is running out to make a lower low by September 21st. So, I will throw out 2 alternate possibilities.
1. My alternate count for weeks has been an ABC/WXY correction from 1121. This is still on the table for a 1231+ rally.
2. Another possibility that I have not charted is a large wave 4 triangle with 1371-->1121 completing 3 waves and 3 legs of the triangle nearly complete.
Of these 2 alternates, I'd favor the 2nd one, because it might explain the Sep 7 +/- cycle and Oct 1 +/- mid-cycle dates. The first cycle end is leading to a series of triangle lows just above the wave 3 low and Oct 1st could be the final wave 5 low. Also, the last 2 mid-cycle lows have been more significant than the primary cycle low. If that happens again, I'll need to consider that the System cycle shifted and/or keep watching both cycle targets for a few months. If the triangle is in play, a textbook 61.8% retracement to 1194ish would be perfect followed by a 61.8% retracement to 1155-1165 and a final triangle leg up to 1175-1185. This would also support OPEX flat-lining and pre-FOMC flat-lining. And, it would suggest a down move out of the FOMC meeting.
The first alternate to 1231+ must also be considered. If 1204 is surpassed, it's a near certainty. If the current rally high is surpassed after a large 2%+ pullback, it is also likely. So, let's say SPX rises to 1180 or so today and then falls back to 1150-1160 in the next day or two. That could fit my primary projection AND both alternates. So, we need to see 1136 break in the next 2-3 days for my preferred scenario, and we need to see 1204 or today's high broken after a sizable pullback for the 1231+ scenario to unfold. Anything in between is probably a triangle.
For the time being, we have 1 likely scenario with 2 alternates. The scenarios will be narrowed if SPX surpasses 1204 or 1136. Whether we collapse to sub-1102, rocket blast to 1231+ or stay in a wild triangle, buckle up. Good luck.
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