(Update 10/13/11 9:30AM EST)
The System is cautiously short on a 2-candle support break of 1209.20. The stop will be placed more conservatively at 2-candle resistance at 1215 currently. 25% profits will be taken at 1197, 1185 and 1173 with reloading on any 10pt bounces. Based on the historical spending-rally stats I gave in the original post below, if 1220 serves as a short-term top, then SPX should fall back 35-50pts to 1170-1185. It just so happens that the 20dSMA, 50dSMA and 89hEMA/SMA are converging on 1170ish over the next day and volatility is still relatively high with a backtest of the VIX 20dSMA perhaps needed, so SPX may very well reach the lower 1170s. Previous ISEE stats suggest that SPX should revisit 1144-1150, but that is not confirmed by other technicals, so I will move the System into long mode if SPX manages to break 1180-1185 thereby exiting the short position and entering long on any 2-candle resistance break. October OPEX max pain is moving up closer to 1190-1200, so I suspect that is where Mr. Market wants SPX to be around next Friday. It is not improbable to see 1170ish and 1220ish and 1200ish again over the next 7 trading days. My next cycle low is projected for November 1st +/- 2 weeks. Once next Friday OPEX is over, SPX will enter the window for a low and could easily revisit the 1150-1170, because the spending-rally stats suggest the 2nd pullback should be 50-60pts...maybe more if VIX is at 30+. Good luck.
(Update 10/12/11 1PM EST)
The System was stopped out for a 1.5% loss. Luckily, I never pre-posted the last trade due to my long weekend and probably shouldn't have entered it, but I will add it to my 60min chart for the record. My head is spinning the last few days...due to a sinus infection...so my posting will continue to be limited this week. DRSI has made new rally highs on the 30-60min charts (not quite the 15min chart yet) which suggests that either SPX is in an ABC or 123 to 1218 thus far. There is tremendous price-volume resistance at 1220-1230. If SPX intends on completing a 12345 from 1075, it may actually briefly pierce 1230 in the next few days. But, an ABC could end at any moment. Until 1231 is broken, there is actually an alternate count that Tony at OEW has posted that would allow lower lows. However, all my evidences suggest this rally should last for a couple months to 1250-1300 and we've already gotten most of the way there, so it should slow down and chop a lot from here on with an upside bias. The statistical pullback target to 1150-1165 (posted last night based on the 1199 high) has now risen to 1170-1185 although 1150ish is not completely out of the question. The daily NYAD setup is similar to the one we saw into 1208 in August which led to a 4-day 87pt drop with similar volatility just above 30, but I think the pullback in this case will be more muted. Good luck.
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I discovered that the recent projected discretionary spending low was actually for the 1st week of October, not the 1st week of September. I updated my public weekly chart. I'm embarrassed to have made that mistake, but the last spending pivot low occurred in March 2011 (http://www.consumerindexes.com/history.html), so the 27-wk projection should have started from April 1st, not March 1st. Having a spending low in the 1st week of October in addition to the System mid-cycle and 4 longer-term cycles explains the strength of the rally.
If SPX 1074 was a significant low, when will we see the next significant high? Although it is not confirmed yet by 3+ months of lower spending, the
recent spending peak in August should lead to a stock market high in
mid-December or late-January depending on whether we are following the
last bear market (avg 16 wks) or bull market time frame (avg 22wks). We might get highs in both time periods, but another related stat favors the mid-December top. 4 of the 6 spending-induced rallies since 2007 lasted 6-9 weeks before significant tops occurred. The other 2 lasted 14 and 27 weeks during the bull market. Given that my technical rules indicate that SPX is now in a bear market, we'll go with the more common rally length of 6-9 weeks. From October 4th, 9 weeks takes us to December 9th which nearly matches the mid-December bear market projection using the recent spending pivot high. So, 2 angles on discretionary consumer spending suggest mid-December +/- will be a top.
What will happen in between early October and mid-December? The 6 previous spending-induced rallies since 2007 had the following summary stats. The stat details can be found at the bottom if you are interested.
1. 4 of the 6 rallies reached 85-100pts in 1-8 days (one took 16d) before pulling back 40-50pts in 1-6 days.
2. 2 of the 6 rallies reached 137-150pts in 8-22 days before pulling back 35-40pts in 4-8 days.
3. After 35-50pt pullbacks, all 6 rallies surged 65-75pts for 2-9 more days followed by a 50-60pt pullback in 2-4 days (with 1 exception that was 35pts).
4. The 2 previous bear market spending-induced rallies were approximately 200pts each. The others were around 300pts and 125pts.
Let's compare that to the SPX today. Since October 4th, SPX has rallied 1074-->1199=125pts in 6 days. If SPX makes a multi-day top right now, the rally would best fit the smaller rally time frame (1-8days) but in between the large and small point sizes. In either case, the pullback is unlikely to exceed 35-50pts based purely on the stats. From 1199, that would target 1150-1165. Assuming we have 5 waves up which DRSI supports, 1150 happens to be the wave 4 low and a common retracement target just below the 89hSMA. The 20dSMA happens to reside around 1165 which is within the OEW 1168 pivot range.
If 1199 is a short-term top and the statistics play out, we would see something like this...
1. 1150-1165 in a few days...let's say Monday 10/17
2. 1215-1240 about a week after that after OPEX...let's say Monday 10/24
3. 1155-1190 3-4 days later...let's say Thursday 10/27
4. 1250-1300 in early-to-mid December...let's say Tuesday 12/9...SPX is likeliest to rally ~200pts
Obviously, if SPX rallies above 1199, the targets will adjust upward accordingly. If I were to try to make sense out of that general path in terms of EW, I would say SPX has probably gone too high to be completing 1 of A as I originally proposed and seems unlikely to retrace enough to form a typical wave 2 and has not spent enough time to already be complete with A of an ABC. So, it looks more like SPX has completed AofW in an ABCXABC (WXY). The first ABC (wave W) should complete after OPEX with wave X completing at the System cycle low near Nov 1st +/- a few days. Then, a much slower, grinding complex ABC (wave Y) would last 5-6 weeks into December to 1250-1300.
On Wednesday 10/5, I mentioned that ISEE Indices had the 2nd highest value in 2011. It is generally considered smarter money than the equity side, but the highest 6 values in 2011 were bearish sometimes after a few days of further rally. The only case that did not cause SPX to trade within 1-2 weeks well below the level at which the high ISEE reading occurred was in Dec 2010 when SPX rallied pretty much non-stop from 1175 to 1344 for 2.5 months, although, even in that case, SPX did trade 15 pennies below the corresponding SPX price 5 days later. So, that leads me to believe that the SPX price of 1144-1146 from the October 5th close and high prices will be revisited within days. From the above analysis, 1150ish may have to suffice.
The System was stopped out at 1178 for a loss and has since re-entered short at 1187 with a stop at 1195.86 + .5% = 1202. I am still sticking with the plan of switching into neutral and then long over the next few days, although it's more and more apparent that I should have switched the System into long mode on Tuesday October 5th once 1113/1118 was surpassed and stopped out the System short position with 7-8 of 10 bottoming indicators in place. The System is now in a bullish configuration with SPX above its 20/50dSMA and 89hEMA/SMA as well as 3 daily candles and a 62%+ retracement of 1231 although Monday's short-term reversal indicators give us reason to wait for a long entry probably after a retest/piercing of key moving averages and 2-candle resistance break.
You'd think that Congress rejecting the jobs bill, Congress needling China, Slovakia demonstrating how fragile and painful the EU union is, Alcoa missing well-reduced expectations, Greece badly missing their targets once again and EU countries and banks getting credit downgraded among other things should have sent the stock market reeling in the last 24-48 hours. But, technicals seem to be winning the day. And, right now, I think a potentially-completed 1371-->1075 structure (although not confirmed by DRSI) along with heavy bearish sentiment, oversold daily indicators and heavy put positions are fueling a bear market rally. The above news items make me very cautious, and we could wake up one day to a Greek default or such, but I've got to stick with the technicals, take profits regularly and control position size.
Ryan Parker has a list of technical resistances and targets similar to mine on his blog at http://equitybriefcapital.wordpress.com/2011/10/10/bottom-in-what-is-next/. I make my own calls largely based on my System technicals and cycles, but Ryan's match mine pretty well at the moment and he also shows some trendline convergence around 1200. One thing that does worry me a bit about my projections is that it seems that a huge percentage of bloggers think the bottom is in for a few weeks. If that stance is to be correct, the surprise might be a smaller pullback than most expect and a smaller grinding rally than most expect. So, it would perfectly fit the stats above if SPX stays between 1150 and 1240 for another 4-6 weeks before breaking above that only briefly before the next significant top is in. Another surprise would be a retest of 1050-1100 although I think that's unlikely unless we see 1150 become resistance on a backtest. I am going to evaluate other technicals over the next few days to determine what gotchas there might be to the above projections, but the final 2 longer-term cycles should be finished exerting their downward influence in the next few days so let's see how far the next pullback takes us. And, keep in mind that the average discretionary spending low was 27 weeks (last week) but the last one took 28 weeks so a retest is not realistically out of the question unless we're still trading above 1150 on Mon/Tues of next week. Stay awake just in case all bottoming indicators get triggered suddenly.
Good luck.
******* Stat details *******
Aug 2007 6+d 100pt, 2d 50pt, 4d 70pt, 3+d 60pt, 9wks total
Mar 2008 1+d 85pt, 1d 50pt, 2d 65pt, 4d 50pt, 9wks total
Mar 2009 8d 137pt, 2d 35pt, 4d 70pt, 2d 55pt, 14wks total
Jul 2009 22d 150pt, 5d 40pt, 8d 60pt, 3d 50pt, 27wks total
Jun 2010 8d 90pt, 4d 45pt, 5d 65pt, 3d 35pt, 6wks total
Mar 2011 16d 90pt, 6d 45pt, 9d 75pt, 4d/11d 50pt, 7wks total
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