Mon 10/3/11. Bottom this week.

(Update Mon 10/3/11 4:05PM EST)
SPX made a new closing and intraday low below 1100. My big view analysis was pretty much dead on over the last few months!!! It feels good to be right cuz it ain't always that way and I gotta celebrate a little when I get the chance. I hope you understand. WTI crude oil also made a new low. SPY down volume was very heavy during the last 15 minutes. It doesn't strongly support a gap up but it does support a short morning rally especially if you see a large gap down with high SPY volume. TICK ended at -189. No good for a bottom. TRIN=3.4. Good but not great for a bottom. VIX above its uBB20. Not great for a bottom although posd with 1101 bottom is good so mixed signal there. NYADV<500 and small change near bearish extreme. Great for a bottom. Daily/60min posd for RSI5/RSI14 and MACD and NDX etc. Great for a bottom. %B10 (see my public daily chart) near 0. Great for a bottom. USD new high. Great for an SPX bottom. ISEE=82 with ISE equities=133. Not real good for a bottom but recent days have been growing bearish and there was an all-time low, so that is overall very good for a bottom.

I'll get the CPCE and Nikkei numbers later, but overall we have a very good, but not perfect, setup for a bottom. One more washout would be perfect and that's usually what happens when NYAD makes a small change near an extreme low in a bottoming situation. So, I'm expecting a momentum bottom on Tues/Wed with a possible retest around the Friday jobs report to form a price bottom. I'll wait to see how futures are in the morning and try to post my thoughts before the open. Good luck and good night.

(Update Mon 10/3/11 3:50PM EST)
SPY volume surged at 1112 earlier. Now there is another surge at 1111. That likely signals a lot of people trying to get out of longs. So, there is a small battle between those picking a bottom near 1102 and those wanting to get out at 1110-1120. The bigger volume surges above 1110 suggest the battle will be won by sellers. 1102-->1112 was probably the first wave 4 in a series of expected wave 4s. However, SPX is likely still in wave 3 if it drops hard below 1085 (1112-27) with a new RSI low on the 5-15min charts before bouncing 10+pts and would open up multiple counts if it manages to rally above 1121. Good luck.

(Update Mon 10/3/11 3PM EST)
There must be a lot of bullish believers at 1102ish, because TICK> 300, TRIN<2 and VIX cut its gains in half. ISEE is bearish but not near extremes. That might be good for a small bounce, but I wouldn't think it would be good for establishing a sustainable bottom. As strange as it might sound, bulls would be better served in the months ahead if the markets would washout to the 1050s or 1010s. However, breaking all the way below 1000 would serve the bears better because there is a 50-100pt air pocket, so bulls seriously need a bottom at 1000-1100 and will probably get it. As long as SPX does not bounce too much into the close, I suspect we're setting up for a large gap down. If that gap down occurs to the 1080s, I suspect the old overnight ES low at SPX 1080ish equivalent will hold for a few hours before SPX bottoms in the 1050s possibly for a Turnaround Tuesday. That would be my ideal scenario. I updated my 60min chart over the weekend with red and blue line projections for a couple of my ideas. Let's see how the last hour and overnight markets go.

(Update Mon 10/3/11 2PM EST)
Finally!!! SPX just made a 27+pt drop (1131.88-1104.61=27.27 to be exact) and it could go a little further. So, we are getting confirmation of our count and its price and time targets. At this point, a rally above 1121 would change my bias away from the 1050s target to either a wedge to the 1090s or a crash-like drop to the 1010s. But, I don't expect overlap of 1121.

I added a little more detail to my #11 bottoming indicator and fixed #9 to say TICK<-1000 (not TICK>1000). Currently, TRIN>3, VIX is at 43-48, NYADV<500, TICK<-1000, posd looks highly likely and Nikkei may challenge its earthquake lows overnight if SPX closes near its low. I'll look at CPCE/ISEE after the close, but, if you exclude the Shanghai Composite which is closed this week, we could end up with 8 or 9 out of 10 bottoming indicators being triggered if SPX breaks 1102. As it is, we already have a majority of triggers intraday, but I think the bottom will be much stronger if SPX closes below 1102. Then, a 1-hour or 1-day washout might be enough to start a short-covering rally. Get ready to put on your bull suit, but make sure its like one of those tear-away warmup suits because we are now in a secular and cyclical bear market.

(Update Mon 10/3/11 1PM EST)
Another 18-27pt drop (1139-->1121). Another overlapping bounce and potential nested wave 2 to 1131. Now we have 7 or 8 potential nested wave 2s from 1196 to 1121. Assuming we finally get a 27+pt wave 3 drop, I wouldn't rely on seeing 7-8 wave 4 bounces since there's always alternative ways to count flats and triangles etc, but 2-4 wave 4 bounces would be reasonable. In other words, assuming SPX now falls to sub-1102 (1131-27=1104 minimum), I would expect the bounces to get smaller than we saw in the wave 2s and we should see multiple of them. My primary targets this week are still 1090s, 1050s or 1010s and 1050s is looking particularly good. The key is to be prepared for an imminent rally within hours (or maybe a couple days at most) once you see my price targets achieved and a majority of my bottoming indicators (see original post below) triggered. I could change my mind, but I'm likely to open a 50%+ long position in the 1050s and shift the System into long mode on a 2-hour resistance break. Good luck.

(Update Mon 10/3/11 10:15AM EST)
SPX 1121 appears to be a magical number. The rally this morning exceeded 1138 causing wave overlap but an impulse down from 1196 is not completely dead. If 1146 is not surpassed, we could be seeing yet another nested wave 2 in which case the ultimate downside target would almost certainly be the 1050s at a minimum and a break of 1121/1114 would get the ball rolling quickly. If 1146 is surpassed today, I'd have to favor the wedge formation that I've seen commonly charted in the last week in which case SPX will probably only make 1 sub-1102 low. Good luck.

P.S. You might recall late last week that I pointed out all the recent intraday down legs had been 18-27pts, so I was expecting a 27+pt drop at some point to indicate the heart of the final wave down. That is why I wanted to see 1116-1119 at a minimum this morning. However, 1146-->1121 was only 25pts and has now overlapped which is why I say it could be yet another nested wave 2. If today's high of 1139 is finally the start of a sharp wave 3 down, we should see 1139-27=1112 at a minimum and likely sub-1102 before getting another overlapping bounce. After that, the bounces should be smaller and there are a lot of nested wave 2s that need corresponding wave 4s. And, don't forget that the current down leg may only be 3of 5, not 5. So, if SPX does hit the 1090s before making a decent bounce, there is a good shot of seeing the 1050s or even 1010s. Those lower targets would have been less likely if SPX had dropped to 1116-1119 or lower this morning and not overlapped 1137/1138.
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The System remains short. Resistance will drop to 1150.94 if 10AM closes lower than 1131. Numerous cycles, including the System mid-cycle, strongly favor an SPX low this week. I am hoping SPX will drop to 1115-1120 without overlapping 1138 so that we have a clear impulse down from 1196. If so, SPX will likely chop its way down to sub-1102 to complete wave 3of5 from 1371. I favor the wedge scenario but not the one I see all over the blogosphere now. I believe 1196-->1114 was 5 waves meaning it was likely Aof3of5, not 3of5. That means I'd expect SPX to break the lower EDT line that everybody is watching causing some to increase their short position, then rally 3-6% to finish 4of5 although most will see it as the first bull leg, then make 1 more lower low and finally rally non-stop to fool everybody. Of course, the Wilshire index did not make a higher high like SPX did at 1220, so its equivalent 1196-->1114 leg looks like 3 waves and that means a wedge completing on the next sub-1102 is possible. I just think it's a little less likely and too anticipated. I'll be prepared either way.

I updated my list of things to signal for a bottom. #1, #3 and #8 have been triggered and others are close. I'd like to see a majority. Unfortunately, Shanghai Composite is closed this week so that indicator won't help.
1. USD makes a new uptrend high above 78.86 probably to 79-80. USD futures indicate 78.43 right now.
2. Copper makes a new low below 3.072. Copper futures indicate 3.184 right now.
3. TRIN > 3 and preferably TRIN >4-5. By itself, this usually indicates a short-term bottom is imminent but given the cluster of recent readings and the high 20dSMA for TRIN historically, the next TRIN spike should lead to a bottom within 0-3 days.
4. NYADV at an extreme low preferably for 2-3 days in a row with at least 1 day below 500 forming a hook, zigzag or scissor formation.
5. Shanghai Composite breaks 2319.73, its July 2010 low.
6. Nikkei approaches its earthquake low at 8227.63 or closes below 8359.70. It closed at 8700 today.
7. VIX reaches 43.18-45.40. VIX peaked at those levels on at least 8 days in the last 2 months. It reached 47-48 for a few hours.
8. CPCE (equities) above 1. CPC has been high recently but that is for the same reason that ISEE has generally been low. "Smart" money has been very bearish up until the last few days while "dumb" money has been fluctuating around neutral, but the 2 combined have been bearish. In the last 2 or 3 days, that has changed which tells me smart money and dumb money are swapping places. Still, I'd like to see 1-2 more readings of CPCE above 1.
9. TICK < -1000
10. SPX below 1102 preferably to 1080-1095 at a minimum.
11. Positive divergences. NDX not making a new low would be ideal to make a positive divergence and bring the indices back in sync. SPX posd in RSI14/RSI5 at the daily or 60min level would be good.Posd on other US/European/Asian/Commodity indices would also add strength to a bottom.

Good luck.