Mon 10/31/11. System Update.

(Update Wed 11/1/11 12:45PM EST)
SPX reached my 1244 +/- target area. The System reloaded to 75% short in the opening minutes at 1236. The System does not have steadfast rules around profit-taking except at stops, but it does recommend 25% profit-taking at approximately 1% intervals and moments of heightened risk such as into the weekend/FOMC/close with reloading on 8-12pt bounces. That is a tradeoff which allows one to minimize risk, capture some profits and stay mentally disciplined during choppier days and weeks while occasionally missing out on a small part of profits during swift trends. This morning, I did not want to risk going 100% short until SPX reached 10pts higher at 1246 (near the 1253 stop) with the FOMC announcement looming, but, with that behind us and no surprises, the System has entered 100% short at 1239 with stop still at 1253. The 3-3-5 flat option with EDT looks unlikely unless you allow an expanded triangle, so I suspect a 3-3-3 double zz ended at 1242. But, we could get one more zigzag slightly higher to 1242+ in the flat or triple zz scenario. Regardless, the next 3-5% move is likely down into a cycle bottom. Good luck.

(Update Wed 11/1/11 9:20AM EST)
Looking at the 1-15min charts and DRSI, the drop from 1293 to 1215 can certainly be argued as 5 waves, but the wave 2 RSI high has not been surpassed and won't necessarily be surpassed on a large gap up. I think it will, but we'll see. The Dow and SPX bottomed differently yesterday, but I can still count 3 waves up from the bottom and 3 waves back down for both. That fits with 5 waves down from 1293 and my ABC projection. With a 3-3 off the bottom, we could see some sort of complex 3-wave structure up to complete a double zz 3-3-3 or even a triple zz. But, a 3-3-5 flat is also possible in which case SPX would likely top at 9:30-10:00 at C=A*1.62 --> 1244 +/- a few pts in the OEW 1240 pivot area and then bounce around into the FOMC announcement or I suppose an all-day EDT would be possible. Obviously, the retracement of 1293 can go higher but B waves are often weak and the cycle expects a low soon, so, if the System gets stopped out at 1253, the sell-side will be in serious question.  Good luck.

(Update Wed 11/1/11 8:20AM EST)
The System is 50% short after opening a position at 1271, taking 25% profit at 1258 and 1219, reloading 25% at 1229, taking 25% profit at 1216, reloading 25% at 1229 and taking 25% profit near 1216 at the close. The System stop is the gap from 1253. This rally could gather steam for 1-2 days if it surpasses 1233, but the System will reload to 75% short on any rally to 1229+ and again to 100% short at 1239 10pts above that entry. It's interesting to note that my "gap" line running from 1344 in February through 1233 last week and 1229 yesterday had a gap 'n run over it last week, was gapped below on Tuesday and might be gapped above today. There are now something like 15-20 pivots and gaps near that line since February. SPX 1218 could be the cycle bottom because the 20dSMA was tested, TRIN was near 3 for the 2nd day in a row, ISEE sentiment remained low and NYAD made a small change near an extreme low, but TRIN would ideally be higher and the VIX 20dSMA was broken with TICK and other indicators not that oversold. So, I still prefer 1293-->1218 as wave A (and possibly the cycle momentum low) with waves B&C still remaining to 1180-1210 probably by early next week if not sooner. Thus, the System will stay in short mode until 1253 is surpassed or 1218ish is retested with bottoming indicators at which point I'll evaluate going into long mode for 1-2 weeks. Keep in mind, the last 3 mid-cycle lows have been much lower lows than the cycle lows and I may flip my cycle/mid-cycle designation if it happens again, so there is a real possibility that the low we're forming at 1218 or a little lower in the next few days will be badly broken in late November possibly into the first week of December. But, spending analyses since 2007 suggest that mid-December (or late January is slightly possible) will be a high of significance and has always (7 out of 7) made a higher high and lasted at least 5 weeks (1075-->1293 was 4 weeks), so I'm thinking that either my cycle/mid-cycle work will come back into a more normal alignment with the mid-cycle low not doing much if any more damage than the cycle low producing a 1200-1300ish range for Nov/Dec OR we're going to get a nasty November to 1100-1150 and yet another monster rally in December. I suppose anything is possible with all the records being set in recent years. For now, with SPX above its 20dSMA and 50dSMA and relieved of many overbought conditions and at or near a cycle low, the technicals point to an imminent 1-2 week rally probably after one more drop below 1215 and we'll just have to see how that rally goes to fill in the puzzle pieces. Good luck.

(Update Tues 11/1/11 8:40AM EST)
The System took 25% profit at 1258 and will take 25% more profit after the open. The System will reload 75-100% short during the next bounce of 10-20pts. I'd say a 2-3% gap down confirms the wave 3 count I mentioned below. But, given that SPX looks like it's going to quickly reach my lowest target near 1221, I'm going to put a more bearish slant on my overall projection into December unless today gets quickly reversed. That bearish slant would likely mean a lower high in the next 2 weeks followed by a lower low (compared to this week's low) in late November, and it means various lower targets at 1160-1210 should come into play. If we're in a wave 3 down, the gap down should be followed by a 5 down and C/3 down this week. Good luck.

(Update Tues 11/1/11 12:15AM EST)
15min DRSI tells me SPX is in a wave 3/C because RSI8+ made new lows at the close. The eyeball test looks like a 1-2-1-2-3 to me and ES futures have been wavering around 5 points lower. If SPX gaps down more than a few points tomorrow, I'd say the odds favor a wave 3 down from 1293. If so, FIBBEWIE projects to 1225-1236 and my spending analysis projects to 1233-1243 while 3-candle daily support and the 20dSMA are common targets near 1221.

Since TRIN>3 and NYAD is oversold and my System cycle low is projected for Nov 1 +/- and the turn-of-month has produced 5% tops/bottoms for 14 of 16 months, I would guess that SPX will finish most of its damage on Wednesday, complete waves 3-4-5 on Wed/Thu in the 1230s, bounce for a day or two and then complete an ABC down from 1293 in the 1220s by early next week. From there, I'm not sure if SPX will rally above 1293, but OPEX max pain around 1240 on 11/18 and a mid-cycle low around Thanksgiving should keep some downward pressure on things until the final rally into December. I suppose the Wednesday FOMC meeting could play into that scenario if they tweak their language to make people think they are moving towards mortgage purchases or some other form of QE3 without actually committing to it. If the Fed definitively starts or rejects QE3 which seems highly unlikely, then we'll probably have to throw my SPX scenario out the window. Good luck.

(Update Mon 10/31/11 1:50PM EST)
The System is now short at 1271 after a 30% retracement of 1287 with stop at 1287 and primary target of 1233-1243, possible target of 1221ish, 25% profit-taking at 1258 and 1245 and 25% reloading on 10pt bounces. The ideal System cycle low is projected for Nov 1 +/- and the 6 previous spending-induced rally pullbacks of 50-60pts since 2007 lasted 2-4 days and SPX is arguably on day 2 or 3, so the odds highly favor the pullback ending this week even if it's slightly longer and larger than average due to the record October rally. The next System mid-cycle low is projected for Thanksgiving +/-, but I don't know if the rally in between will produce a lower or higher high. I don't expect 1300 to be surpassed by much if any until early-to-mid December and even that time period may only produce a double top with a slightly lower/higher high. However, if 1300-1310 is surpassed, the odds favor a retest of 1350-1370+. Good luck.
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The System remains in short mode but without a position. SPX held support on Friday but will likely break 1276.79 at the Monday open. Although the previous top was 1292.66, about 7 trading hours have passed since then and 4-candle resistance should become 1287.08 at 10AM. So, the System will try to enter short less than 1% below 1287 at 1274-1277, but if the gap down falls below that, the System will wait for a 30% retracement of 1287 which should end up being 1274-1275ish. Although whipsaw is possible since I see a lot of Elliotticians calling for one more wave up as 5ofC/3, the next large move is likely down and the target should be at or a little below the 20dSMA which is likely to rise near 3-day support at 1221 over the next few days. The last 6 spending-induced rallies since 2007 experienced a 50-60pt pullback (all of them were in that range) at this point in the rally. That would equate to 1233-1243 from the current high, but I wouldn't be surprised by SPX reaching the 1220s since 1220-1227 has had several ultra-significant pivots over the last few years and the current rally has set records and reached bullish extremes very quickly. Good luck.