Wed 9/21/11. Just the fax, ma'am.

(Update Thu 9/22/11 2:45PM EST)
SPX did trade lower 10pts but in overlapping fashion, so the 3-3-5 flat count still looks good to me. Using standard estimations for that pattern, SPX could rally to 1132 (which it already hit), 1142 (intraday double top with B=C=A*1.62) or 1146-1152 with higher multiples. 1142ish seems likeliest to me but 1132 was sufficient.  Or, a 5th wave wedge to 1115-1118 is possible too. Either way, the most bearish scenario would be a wave 2 rally from above 1102. Good luck.

(Update Thu 9/22/11 1:25PM EST)
It's tough to say whether 1141-->1125 was a wave 1 for the next leg down to 1110ish or if it is part of a 3-3-5 flat from the initial morning low at 1128 with rally coming to 1140-1145ish. There should be a sharp 15pt move in either direction before end of day and perhaps even a reversal of that move before end of day. I like the System's 75% short position. It will reload 100% at 1140-1145 if given the opportunity. SPX is approaching the 1125 low right now and Dow already broke its equivalent but me thinks either option is still possible. Good luck.

(Update Thu 9/22/11 11AM EST)
The System reloaded 100% short at 1140 on a 10+pt bounce. It will reduce its position 25% at 1130 and 25% at 1120. I am expecting a large wave 2 bounce to start late today or tomorrow so some profit-taking is a good thing. Update: just took 25% profit at 1130.20...possible bounce back to 1140-1145 to complete a wave 4 from 1220.

(Update Thu 9/22/11 9:50AM EST)
System sold 25% of its short position at 1130. It will reload on any 10-20pt bounce.

(Update Thu 9/22/11 9:10AM EST)
 ES futures suggest that SPX will test 1130-1135ish this morning. It looks like I wasn't bearish enough for the next 1-2 days. Breaking 1136 would break the triangle count, but the essence of the 2 bearish counts would be in play and we were positioned for this anyway. The counts can be seen on my public daily chart. The most bearish scenario would be...
1220-->1183=i (yes, this could be subdivided into a 1-2-1 at the 1188/1183 lows)
1183-->1200=ii
1200-->1130ish=iii
1130ish-->1145-1150=iv
1145-1150-->1110ish (5=1) or 1120-1125 (5=1*.62)

That should all happen by Friday and I say it's the most bearish, because that would only complete wave 1 of 5 from 1356/1371. Then, SPX would probably form a weak wave 2 to 1140-1160 for 1-2 days before falling to 1000-1020. See my time and price analyses below. If SPX breaks 1102 too quickly on Fri/Mon, there will be a risk for the downtrend to end at any moment. I am not likely to start trading long until SPX reaches 1000-1040 (with stop around 990 due to further crash risk to 900-950) or until it stabilizes for a week or so.

Things keep drawing me back to Oct/Nov 2008 even though the exact pattern stopped working a few days ago after being successful for a month or so. On November 6th 2008, SPX fell about 50pts closing near the low leading to TRIN>4 for 2 days in a row and a NYAD small change near bearish extreme. That's the last time we had 2 strong TRIN days back-to-back like we could get today. On 11/7/2008, SPX retraced 48% of the 2-day drop (1007-->900-->952) in a little over 1 day, then fell hard for 3 more days, rallied VERY strongly 1 day and then fell hard for 5+ days more. Although the exact amounts and retracements and timing will differ, I suspect SPX will follow that pattern...down today and possibly tomorrow morning, up for a day or so, down for a few days near end of month and then a final bounce and lower low with posd. That's a 5-wave scenario, and unless SPX wedges, we are almost certainly heading for 1000-1020. DAX is back in its free fall zone with 4% further to go before support starts. The banks could fall 15% before finding strong support if they make it to their free fall zone...that would likely equate to 10%+ in SPX. You can see those zones on my public cross-market chart. Good luck.

_________________________
Anybody remember what movie "Just the fax, ma'am" came from? And, did you know that it was a play on words for an earlier catchphrase? Well, I'm here to give you the "facts" as I see them.

*** TIME ***
1) The System mid-cycle low is projected on September 29th +/-. The mid-cycle low has produced lower lows than the primary cycle low the last 2 times and tended to run long, so I'm not sure if the cycle has shifted but it's not important since both cycle lows have been working. The primary cycle low ended on September 12th at 1136.

2) 4 longer-term cycle lows favor an early October low (2 can be seen on my weekly chart).

3) The leading-indicator discretionary spending cycle projected a low in the first half of September, but it has a limited sample size of 6-7 since 2007 and the last 2 such cycles have produced worsening higher lows before rallying hard for 5+ weeks so maybe the trend continues with a lower low this time before rallying 10-20%.

4) Seasonality favors turning points around October and March.

5) Sentiment has bounced off extreme bearish levels, and "dumb" money has gotten extremely bullish recently while "smart" money got extremely bearish. I consider ISEE, VIX, CPC/CPCE and other custom indicators at sentimentrader and other sites. Any significant drop from here will likely produce even more extreme bearish sentiment, so it's time will be limited to a few days or weeks at the most.

*** TIME and PRICE ***
6) The last down leg in an 8% downtrend averages 8.8 days and 1.3% per day in about 12 cases since 2007. Only one exceeded 14 days. Yes, I brought this up a few days ago, but 1220 was a close enough retest of 1231 to be considered a reset of the trading day count. From Tuesday at SPX 1220, a 9 day drop at 1.3%/day projects to 1078 on September 30th and the likely maximum drop would last 14 trading days to jobs Friday on October 7th.

7) My preferred EW scenario and my alternate bearish scenario call for a 5th wave matching either 1371-->1258=113pts or 1356-->1296=60pts. There are converging multiples around 1080, 1040 and 1000. The 1356-->1296 leg took 7 days. The meat and failed left-translated cycle top leg at 1345 in the 1371-->1258 down trend took 12 days. So, a low between September 28th and October 5th at 1000-1080 makes the most sense.

*** PRICE ***
8) The double crash scenario (detailed in previous posts) with about 20% odds requires sub-1020.

9) The H&S pattern between 1102 and 1231 targets 1050ish. The 2 large H&S formations in 2009-2010 failed. The 2011 H&S topping at 1371 worked. Will this one? Using a channel projection gives the same estimate. If you look at my public 60min chart, you will see that SPX closed right on the lower line of an uptrend channel and just below the old broken downtrend line from 1347-->1231.

10) My preferred triangle pattern (not considering EW/Fib multiples) should project about 110pts (1121-1231) from its final leg or breakdown which are not known at the present time but should occur around 1190 and 1150 respectively which gives us estimated targets of 1080 or 1040.

11) 3 key Fibs related to the 667, 1220, 1370 and 1576 levels exist at 1008-1018. There are 3 related Fibs at 1089, 1101 and 1121. The latter 2 served as stiff support recently.

*** SUMMARY ***
All in all, there is VERY strong evidence that a low should occur during the 1st week of October +/- at 1080, 1040-1050 or 1000-1020. If 1000 is broken for more than a few hours, watch out below to 900-950 due to a price-volume air pocket, but I do not expect that. Since my System marks cycle lows where RSI momentum bottoms, it is very possible to get a wave 3 of 5 low around September 28-29 and a positive RSI/price divergence during the 1st week of October.

On an even shorter-term basis, TRIN>4 and a NYAD zigzag pattern near an extreme low suggests a sizable bounce within the next 0-2 days. Cobra (see my recommended links) has stats heavily favoring 1-2 more days of downside. ISEE Equities was actually very bearish today and the last 10 times that a similar reading occurred in the last 6 months led to 7 mutli-day bottoms (usually 2-5 days) before continuing lower, 1 huge 40-50pt intraday reversal doji before continuing lower and 2 tops. Since SPX was not at a top today, I think it's safest to assume SPX will bounce for 1-3 days starting within the next 1-2 days. To get very specific, SPX can easily fit the scenario painted in the paragraph above by doing the following:

Sep 20-22 = 1220-->1150 = wave 1 of 5 from 1356/1371
Sep 22-23 = 1150-->1185 = wave 2
Sep 26-29 = 1185-->1080 or 1040-1050 = wave 3
Sep 29-Oct 1 = 1040/1080-->1100-1120 = wave 4
Oct 1-3/5 = 1100/1120-->1000-1020 = wave 5 of 5

Keep in mind, my work suggests a HUGE 10-20% 5+ week rally once this bottom finishes with a significant top (could be a higher or lower high) in mid-December to late January. The System will start looking for cautious long positions in the next 1-2 weeks. Some are anticipating a huge Obama refi program to be announced in the next couple weeks and there will probably be more can-kicking in Europe and possible window dressing the last couple days of September plus a short-term USD top in a week or two, but there are also a lot of potentially negative events too like jobs on Friday October 5th, the US debt ceiling at end of month, European bank/country/parliament failures etc. So, it should continue to be a rocky volatile ride.

As a follow-up to my late-day comments, USD has now surpassed 77.78, VIX closed above its 20dSMA and SPX has turned the 89hEMA/SMA and 20dSMA into resistance. Those are all congruent bearish signs supporting my thesis. I do see the strong possibility for a rally back up to the OEW 1187 pivot area backtesting the breakdown, but there are no guarantees so I will only lightly trade around 25-50% of my position. Good luck.