(Update Thu 9/15/11 4PM EST)
ISEE Equities finished at 218 which was right on my cutoff line, but I still think the general conclusion applies. A strong pullback of 40+pts is imminent. System support has now risen to 1203.44, so it won't take much to get short. Given OPEX and trapped shorts, I wouldn't expect an immediate drop without a higher high or a 1-day consolidation. However, SPX may have wedged into the close and is certainly overbought with lots of potential news triggers. So, I will just follow the System and hope we don't get whipsawed more than once. Good luck.
(Update Thu 9/15/11 3PM EST)
I did not think it would be reached a couple days ago, but max SPY OPEX pain is 123 according to this site http://www.optionpain.com/OptionPain/Option-Pain.php. That equates to SPX 1225ish, so 1225 +/- seems plausible on Friday with 1 of 4 similar ISEE setups leading to a 1% rally before falling. System support has risen to 1200.83 so a short is likely on the next decent pullback. I normally recommend not trading just before an FOMC meeting or OPEX, but it looks like we could get a very tight stop with extremely high reward so it's worth a shot. Personally, I entered a swing short position at 1187, traded around that down to 1143, tried a long position at 1140 getting stopped out at 1136 unfortunately (not posted here because it was against the System and risky) and then re-entered 95% short at 1161-1168 lightening up a little at 1187 and reloading at 1199. I performed better than the System on the way down and worse on the way back up, so my gains are very small on paper right now. I'll be looking for a temporary exit and re-evaluation probably based on the next couple System signals into the FOMC meeting although I want to see what the US Dollar does. Good luck.
(Update Thu 9/15/11 1:15PM EST)
System support has risen to 1190.67 where a short would be re-entered. If SPX closes above 1202.14 at 2PM, support will rise to 1198.23. Let me give you some recent 2011 dates: May 2nd, July 1, July 21 and September 7. Those are the last 4 times that ISEE Equities closed above 218 for 2 days in a row. There is a good shot of that today unless SPX pulls back strongly before the close. On those 4 previous occasions, SPX topped at 1371, 1356, 1347 and 1204. The SPX 1231 top was close but did not quite qualify. Those pivots should immediately stand out like a sore thumb as all the most significant tops in the last 5 months. However, I should point out that 1 of the 4 cases rallied 1% higher over 3 days and 1 other traded sideways for 1 day. So, 10-15pts above today's ultimate high is not out of the question but upside is limited. After those 4 cases topped, SPX fell 41pts in 4 days, 60pts in 7 days, 236pts in 13 days and 68pts in 3 days respectively. The latter 2 occurred with higher VIX while the former 2 occurred with much lower VIX. A 40-100pt drop within a week of the top which should occur Thu/Fri/Mon from not much higher would seem very reasonable. A smaller 40-60pt drop would not really eliminate any of our potential counts, but it gives you an idea of what might be coming soon to a stock ticker near you. Keep in mind, it's a small sample size and the same occurrences were not as bearish during the bull market. But, it matches our expectations through other indicators. OPEX could hold things up into Friday possibly pegging a round number like SPX 1200, 1210 or 1190. Seasonality is not good for the next 1+ week but the FOMC announcement is Wednesday. Good luck.
(Update Thu 9/15/11 10:15AM EST)
Although 1202 was broken, 1204.40 was not (and Dow did not surpass its equivalent level either), and the move up so far today is an ABC in fitting with ES futures choppiness. So, the whole move from 1136 still looks corrective unless SPX is forming an EDT 5th wave with a series of 3-wave legs up to 1204.4+. ISEE equity c/p ratio started out over 700! (I don't recall ever seeing that) and is still at a super extreme 350+ with "smart" traders still very bearish below 50. Those numbers will cool off if SPX falls, but the extreme equity bullishness for 2 days last week and 2 days this week is noteworthy. In the 1231+ rally scenarios, I can come up with likely pullback targets between 1160 and 1185...a fairly wide range. However, with the 20dSMA and 89hEMA at 1176-1179, I think it is likely SPX will pullback to 1170-1180 to test/pierce those MAs. If those levels are gapped below without an immediate reversal or if 1170 is broken, then the triangle scenario will be emboldened. BTW, the triangle would not be eliminated at 1204.4+ since the B wave of the triangle would have been 1231-->1136, but it would put the daily downtrend (System 3 daily candle rule) in jeopardy. The US Dollar came within 6 cents of overlapping its wave 1/A and his since rallied 42 cents, so a series of wave 5s higher is still possible putting pressure on SPX. Even if that occurs, I'm not sure if that's enough to cause an SPX breakdown or merely some pullback/consolidation. Watch USD. Good luck.
(Update Thu 9/15/11 9:30AM EST)
More bad economic news. Then market intervention leading to short covering. SPX may be intent on breaking 1204.40. That would likely qualify as a 5th wave from 1136 and place the triangle count in jeopardy, but I try not to rely too heavily on the short-term squiggles and a flat count from 1121 would be possible too and ES futures look more "overlappy". The USD is falling back near 76 where price overlap would make the previous 3 waves look more like an ABC than a 123. In the 1231+ rally scenario, it is possible that SPX merely retraces 20-40% in a B wave which would currently be 1176-1189. Bears have a better technical argument if SPX cannot break through 1204.40, but I'd still like to evaluate things after the next sizable pullback for more clarity. BTW, SPX has veered severely from the 2008 analogy and would no longer seem very useful if 1204 is broken. Good luck.
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The strength of today's rally virtually eliminated my preferred bearish count which served us well for a few weeks. I said buckle up, but it got even wilder than I expected. We are now left to favor either an ABC/WXY rally to 1231+ OR a large triangle as depicted on my public daily chart. DRSI would now allow for the rally off 1136 to be a 1-2-3 if it doesn't fall back too far. I think it will pull back too far and eliminate an impulsive count, because ISEE equity traders have been extremely bullish (see image and details in my previous post), NYADV formed a true small change at a bullish extreme on day 2-3 of a rally (yesterday did not quite qualify), USD is hanging in there with a likely wave 5 higher still needed and price moved too far too fast on worsening European news.
We should find out tomorrow if SPX plans to exceed 1202 or submarine 1180 first, and that will help our count. If the SPX pullback overlaps 1180 or DRSI (which is very close now), we'll have an ABC off 1136. That favors an ongoing triangle with subsequent 50-80% retracement of 1136 to 1150-1170 but could allow for an unlikely double corrective move to 1231+ (ABCXABC). If SPX drops below 1170 (a 50% retrace), the double corrective count will seem even more unlikely and we'd be left to focus on the triangle. Although I think the triangle would break downward once finished in the next week, there is always the possibility that it expands one more leg and breaks up in a C wave for the long-awaited 1231+ rally. Triangles occur in B/X/4 waves.
The September 7th +/- cycle low projection likely occurred on September 12th at 1136 with TRIN>5 but a triangle would form a series of lows around that date similar to the series of wedge lows we got into the last cycle low window down from 1371. I'll wait to make it official, but the next cycle low will be projected for November 4th+. The last 2 mid-cycle lows have actually been lower than the primary low. The mid-cycle low is slated to occur September 29th, but it has been running long, so I've been saying October 1st +/- which also matches up better with 4 longer-term cycles converging in early October. But, my cycle window would allow for a low into the first week of October or so. That time frame would fit with a triangle completion in the next week followed by a typical 5-10 day 10%+ breakdown. However, the thing I don't like about that scenario is that my consumer spending analysis was looking for a low this week or last, and the previous 7 cases since 2007 have not made lower lows after the spending cycle lag. But, the 2 most recent cases have made weaker rallies with deeper higher lows, so the trend might allow for a lower low this time. And, 7 is a small sample size so maybe the spending lag will run a coupe weeks longer than normal. I'm a bit perplexed at how to fit the puzzle together now. Ideally, I'd love to see SPX crash hard in the next week with a higher low in early October because that would make for a perfect puzzle with my evidence, but today's rally pushes alternate counts to the front that we must consider to avoid losing our shirts. So, let's be fluid with the count over the next couple days and judge the strong pullback that I expect.
The System is still in short mode but flat after getting stopped out at 1187 today. It will re-short below 1180 based on current hourly support. Good luck.
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