Thu 10/20/11. OPEX Arrgghhh!

(Update Fri 10/21/11 7PM EST)
DRSI tells me that the strongest wave thus far from 1074 ended at 1220.25. 30min RSI23-27 and 60min RSI 11-14 tell the same story and are high enough degree to pay serious attention to. The 3 pullbacks of 29-36pts since SPX 1220 made lower RSI lows without breaking the RSI low seen at 1079, and the 3 subsequent rallies all made lower RSI highs than we saw at 1220. If you are an Elliotician, that pattern screams "triangle" whether you call it contracting, expanding, ending diagonal or ascending. The Dow actually looks like it has 5 waves up from the equivalent of the SPX 1191 low which was likely a wave 4 or B.

There is nothing clear cut in EW. But, SPX likely has a decision to make on Monday. We may know as early as Sunday night. SPX is currently a little above its old 1233 high and within the OEW 1240 pivot range. The 30min-60min RSI would likely not make a new high if SPX only rallies 5 more points to 1243 let's say. However, IMHO, SPX has either (A) completed a 5-wave structure from 1075 to 1240ish in which case the historical 50-60pt pullback I've been expecting will take SPX back to 1180-1190 and key moving averages in a B-wave for 1-week +/- or (B) entered 3 of C/3 in which case it should make new RSI highs and easily reach 1250-1260 and probably higher at which point SPX would retrace 50-60 pts back to 1200-1220 in a wave X or 1.

Regardless of how you count it, DRSI tells me that Monday should determine if SPX 1075-->1240ish ended a 5-wave structure or not. Given my cycle low projections for Nov 1+/- and Thanksgiving +/- plus the end of OPEX and overbought indicators and an imminent short-term USD bottom, I lean towards a pullback now. However, SPX can still rally for a week and then roll over for the few days after Nov 1st. A further SPX rally next week would make me re-evaluate my larger projection for an A/W wave into late October, a B/X into Nov 1 +/- and then a C/Y into December with a hiccup around Thanksgiving. If I am right, SPX only has 50-60pts of upside in the next 8 weeks and not much more risk than that on the downside, so expect things to get more boring day-to-day with the occasional spurts on good or bad global economic news.Good luck.

(Update Fri 10/21/11 10:20AM EST)
SPX new high to 1238 thus far within the OEW 1240 pivot and approaching the bear market breakdown at 1250-1260. Daily support moves up to 1197 from 1191. Hourly support rises to 1215 where a new short position would be entered. Tech, small caps and RSI are diverging a little. USD made a new downtrend low. A 50-60pt pullback would now target the 1180s, but a surge to 1250-1260 first might limit the damage to 1200ish. There are now only 6 trading days left to the Nov 1 projected low. The last 3 mid-cycle lows have been more significant than the cycle lows, so I am prepared to swap my cycle/mid-cycle projections if Thanksgiving proves to be a deeper low than Nov 1 +/-. As part of my overall analyses for a rally into December, do not forget the 3rd year presidential stats and Mr. Market's intent to make SPX positive for the year (1257.64+) or at least very close to it going into the last couple weeks of settlement. If my cycle work is correct and SPX pulls back into Nov 1-ish and then again around Thanksgiving, it's hard to see SPX exceeding 1250-1260 until December in a last hoorah. The crystal ball is fuzzier after that but late January looks to be a lower high followed by the real damage. One more thing...I don't know if you recall the "gap" line that I was using from the SPX 1344 top (on my public daily chart). There were something like 10-15 gaps/pivots on that line which now appears to be crossing 1234 +/-, so I don't know if that means SPX will pivot lower or if it will gap above that level on Monday or if it has no significance any longer. Good luck and good weekend!

(Update Fri 10/21/11 8:30AM EST)
The System was stopped out at 1216.39 late Thursday as planned for a minor 2-3pt gain washing out the last minor loss. SPX may rally to 1233+ but, for reasons mentioned previously, the System will be looking for another short entry for the short-term. Futures suggest SPX will test 1220-1230 on a large gap up this morning which is not what I expected on OPEX. The daily trend has yet to turn down. If that occurs on a break of 1191, history suggests SPX will almost certainly test/pierce its 20dSMA but that is rising to the 1180s next week so the 1170s are still very possible next week but fading in the rear view mirror. Good luck.
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S&P 500 OPEX max pain on Friday October 21st is near 1190-1200. I still suspect SPX will end up around that area on Friday morning, although I have been thinking for a week that it would dip to the 1170s first. Apparently not.

The System went short at just above 1215 as planned, took 25% profit at 1202 after a 1% drop and has reloaded 100% short at 1213 after a 10+pt bounce. 25% profit will be taken again at 1207, and the trade will be stopped out at 1216.39 which would produce a minor 2-6 pt gain depending on whether more profit-taking occurs first. If stopped out, the System will remain in short mode until 1190 is retested and thus re-enter short by candle rules.

IMHO, using low-level DRSI, SPX 1233-->1197 finished 5 waves down. The current rally is probably "a of B" and has already threatened our stop level where the System reloaded, so I'm taking 25% profit a little bit more quickly than normal if SPX drops back to 1207. If my count is right, SPX should top at 1215-1240 in an ABC and then fall down to key moving averages. You'll notice I'm allowing the ABC to potentially rally above 1233 because there is a chance for a 3-3-5 irregular flat or an ascending triangle as alternate counts into the OEW 1140 pivot. However, given OPEX max pain and overbought indicators and downside cycle pressure as Nov 1 approaches and the historical behavior of spending-induced rallies, I highly favor a 50-60pt pullback likely finishing next week. That will be a much safer buying opportunity with a reasonable stop below key pivots/MAs especially if technicals like VIX, ISEE and TRIN line up as I expect they will.

This weekend's European get-together is a bit of a wild-card, but it looks like answers might be delayed until mid-next week. Although I don't expect any such plan to change the long-term situation or for the market to be surprised too negatively or positively, I do think a more detailed comprehensive plan would remove some uncertainty from the market temporarily and there are other things like seasonality, discretionary spending and US budget measures which should be supportive of more SPX rally into December with brief dips in late October and late November based on cycle work. If the dips are stronger than I expect, then we can re-evaluate my projection of SPX 1250-1300 in December. If all goes as planned, most of the large swift money-making SPX moves are over, but, over the next month, we should get several 30-50pt multi-day trends in both directions with at least one more 50+pt rally starting around Thanksgiving +/-. I suspect that will be the last best chance to get money out of the stock market for many months if not years ahead.

Good luck.