Mon 10/24/11. Is 1257 THE Top?

(Update Thu 10/27/11 9AM EST)
Futures indicate that SPX will reach the next resistance zone at 1275-1285 this morning. My daily chart projection was wrong. As planned, the System short from 1247 took 25% profits at 1234, reloaded 25% on a 10pt bounce at 1244, took 25% profits at 1234, took 25% profits at 1221, reloaded 25% on a 10pt bounce at 1231 and stopped out at 4-candle hourly resistance at 1243.37 for a 1% 12pt profit. I believe the Nov 1+/- cycle low is still to come, but support has now probably moved up from the 1170s to the 1200s to the 1220s as SPX has continued to rise. Although the System would have done very well in long mode over the last 2 weeks, I put it in short mode too soon on overbought indicators and an approaching cycle low, but the last 3 trades have still managed to squeak a 1% profit after losing 3.5% on the 2 previous trades. We are now only 2-3 days from the ideal cycle low date and overbought has become more overbought, so the System will stay in short mode looking for a top. I'll have to re-evaluate things over the weekend, but Tony's call at OEW for 3ofC up to 1260 or 128x from 1075 is playing out well. Good luck.

(Update Tues 10/25/11 10AM EST)
The System is short from 1247. Anything above 1244 would be within 1% of the 1257 top. I did not actually make this morning's trade since I was personally short from Friday, so I'm not sure if you could have actually gotten the price I saw at 9:32AM. But, we're not actually trading SPX as an instrument anyway and 1-2pts will not make any difference in the grand scheme of things. 25% profit will be taken at 1234 and 1221 with a stop currently above 1257.

In case you are interested, I updated my public daily chart with my latest 2 projections. The blue projection (with a slight variation in dashed blue) represents my post below with a wave B & C into December. The alternate black projection represents a more bearish view with 1257ish as THE top for the next couple years. However, both projections assume SPX will generally hold up into year-end due to the many reasons detailed below. The key differentiator between the 2 projections is the size of the next drop. The history of 50-60pt spending-induced rally pullbacks and my System cycle and configuration studies suggest 1197-1207 should hold. If it doesn't, the bearish projection will need to be given equal or greater weight with the 1187 OEW pivot and 50dSMA as the final strong bull support. In either scenario, I'm expecting the next scary drops to occur in Q1 2012, and 40-60pt swing trading should be profitable for 1-2 months. BTW, DRSI on the daily chart has exceeded the level seen at 1347 but not quite 1356. That allows for the 1-2-1-2 bearish count so it cannot be dismissed despite my other evidences for a rally into December such as...the previous 6 spending rallies since 2007 all lasted at least 5 weeks (and usually 2-3 months) and we are at the beginning of week 4. Good luck.
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Today, SPX essentially reached the 1258 June low, the 1256 OEW pivot, a 62% retrace of 1371, the lower end of heavy price-volume at 1250-1350 and the old broken uptrend line from 1011-->1040-->1231-->1257ish while Dow came within 0.2% of touching its 200dSMA. That's a lot of resistance that technicians are watching.

The System has no position but will enter a short position below 2-candle hourly support currently at 1249.69. Per my analyses of the 6 previous spending-induced rallies since 2007, I am still expecting a 50-60pt pullback imminently. Of course, the target has risen from the 1170s to the 1200s where it looks like the 20dSMA will converge over the next week.

However, to answer the title of my post, I do NOT think 1257ish is the intermediate-term top, although I think it's very close and is probably a short-term top. Why?
1. Amazingly, DRSI (hourly RSI14-16 currently) did not confirm a new high today but is now within pennies. SPX can fall back now and still be counted as a 5-wave structure from 1075. Although a 3-3-5 flat count from 1121 is possible, I think the odds favor completion of wave A with B & C still to go.
2. My cycle work expects a low around Nov 1 and Thanksgiving, and my spending work expects a high around mid-December. The cycle lows are typically higher lows while the spending highs have never been lower highs as compared to previous weeks (not versus 1371/1356).
3. The System is still in a bullish configuration while above 1197 and the 20dSMA, so buying the dip (back to the 200dSMA) has more odds of success for the time being.
4. Sentiment needs time to get more bullish.
5. The market needs more time to allow the trapped bulls above 1250 and the trapped bears below 1200 to exit their positions. 5 months of bearish behavior need to be worked off and that historically lasts 2-3 months or longer.
6. Seasonality, 3rd presidential-year behavior and last ditch efforts by the EU, Congress and Fed should provide some support into December while hedge fund redemptions, trapped bulls, retiring citizens, swing traders and unemployment keep a cap on the bull.
8. Today, SPX made a small NYAD change at a bullish extreme. That is typically bearish within a day.

Although I will be focused on bottoming indicators for more precise trading, I am expecting something similar to the following scenario to unfold.

1. SPX completes wave A at 1075-->1257ish possibly after a brief piercing tomorrow.
2. SPX pulls back to 1200-1210 in a wave B possibly touching the 20dSMA and/or 1197 low on November 1st +/- a couple days.
3. SPX rallies back to 1250-1270 before Thanksgiving. There is a convergence of the 200dSMA, downtrend line from 1356/1347 and uptrend line from 1011/1040/1231/1257 at 1270ish in mid-November.
4. SPX pulls back for a few days around Thanksgiving +/-.
5. SPX either extends wave B into a sideways triangle at that point before briefly breaking out or SPX grinds higher in a wave C EDT to 1270-1300. In either case, SPX tops at 0-3% above its mid-November high in the 2nd or 3rd week of December. That would make C=A*.038 or C=A*0.5 and unlikely to break 1300.
6. The market may have a scary dip before Christmas but will probably hold up reasonably well forming higher highs in the last weeks of December and January before dropping down to test the 1011/1040/1075 lows. March and October are the most common months for significant turns. I suspect March will either be a scary drop or the last lower high before a scary drop.

I will adapt that projection as we go, but, unless I see SPX move into a bearish configuration below 1197 and the 20dSMA for more than a day or so, I think all the points above argue strongly for more upside into December. The System will trade short into the next short-term bottom and then go long per candle rules for 2-3 weeks. Good luck.

P.S. I forgot to write down the stats the other night, but SPX has formed a multi-week top or bottom at the first of every month +/- 3 days something like 14 of the last 16 months although sometimes there were token lows/highs a couple days beyond that and a couple months completely retraced the turn later in the month. Still, it makes Nov 1 +/- and Thanksgiving +/- an even better bet although my cycle work doesn't pay attention to stats like that.