Tues 10/18/11. Patience grasshopper.

(Update Wed 10/19/11 3:10PM EST) 
System 2-candle hourly support at 1213.53 was broken, and, even if the System had stayed in long mode, the System would have exited any long position just above 1209 at 4-candle hourly support. The System is not yet short, because the recent top was 1233 and the System is waiting for a 30% retracement or very close to it. Currently, 30%*(1233.10-1207.58)+1207.58=1215. Assuming the previous 6 spending-induced rallies since 2007 rhyme with this one, we are likely to get a 50-60pt drop to 1173-1183 which lines up with key moving averages and OEW pivots. A brief piercing lower than that would not invalidate the bullish premise into December. OPEX max pain is 1190-1200. The cycle low is projected for Nov 1+/-. It's hard to see a drop to the 1170s taking 2+ weeks and the previous 6 spending-induced rally pullbacks have only lasted 2-4 days, so I think SPX will either (1) form a consolidation pattern like a triangle, flat or double zigzag over the next 2 weeks with the primary damage ending in the next few days in the 1170s or (2) quickly pullback to the 1170s, rally back to 1230+ and then pullback in a deep wave 2 of C/Y into Nov 1 +/- and then a wave 4 of C/Y around Thanksgiving. Either way, I still expect SPX to stay in the 1165-1235 range for a few more weeks and will re-evaluate if it doesn't. VIX is approaching a backtest of its 20dSMA. USD appears to be forming a short-term bottom. Those things support some short-term SPX consolidation. Good luck.

(Update Wed 10/19/11 9:15AM EST)
I am placing the System back into short mode which means it will go short on the next 2-candle hourly support break. Why?
(1) We are now within the early time window for a System cycle low...9 trading days to Nov 1.
(2) Since we just had a 29pt and then 33pt pullback, I think that qualifies for the 1st pullback expected using my spending analyses. The 2 of 6 most bullish spending-induced rallies comparable to the current rally only pulled back 35-40pts initially. After a new high, the second pullback was 50-55pts in those cases, so that is what I expect next.
(3) Technical indicators are getting very bear-friendly near OPEX. OPEX max pain is actually lower at 1190-1200 and the NYADV formation with multiple peaks in succession over 2500 usually leads to a very large pullback. VIX probably needs to backtest its 20dSMA. The USD is trying to form a short-term bottom. There is plenty of room lower to key SPX moving averages and pivots and there is heavy resistance at 1220-1230.

SPX made a new high on Tuesday. It has still not broken solidly through 1220-1230 resistance. Whether the next sell signal occurs at 1213.53 (current support) or 1235 (assumes SPX will spike further), I think it will lead to a 50+pt pullback and probably test key moving averages. Breaking the 3-daily candle low at 1191 would almost certainly lead to 10-20 points lower to the 20/50dSMA based on my studies. I expect to switch the System back into long mode between now and the first couple days of November and then back short again in mid-November due to the projected Thanksgiving mid-cycle low. Good luck.
_____________________________
Using the previous 6 spending-induced 10%+ SPX rallies since 2007, I posted stats last week that favored a 35-50pt 1-6 day pullback followed by a new high and a 2nd pullback of 50-60pts in 2-4 days. The 2 largest initial surges of those 6 only pulled back 35-40pts the 1st time and 50-55pts the 2nd time which is at the lower end of the overall rally average. You might guess that a larger rally would produce a larger pullback in terms of points or percent, but it appears that stronger momentum begets weaker pullbacks at least in these cases. The recent 1220-->1190 drop was only 30pts and less than 1 day, so it's unclear if that qualifies as the 1st pullback. If SPX is making its 1st pullback from 1225, it should fall to 1175-1190 between now and Monday. If SPX is making its 2nd pullback, it should fall to 1165-1175. The 20dSMA, 50dSMA and 89hSMA are all still clustered around 1170, the last drop stopped at 1190 and the initial rally surge stopped at 1171. The 38.2% Fib retracement of 1075-->1225 is 1167. There is an OEW pivot cluster at 1168/1176/1187. So, I think it's very reasonable to expect a pullback to 1170-1190 with a likely short-term bottom at 1170ish or possibly 1190ish.

Once SPX falls below 1190.58, the System will enter long on any 2-candle resistance break. Although there is a strong chance for a whipsaw if a b-wave bounce is weak (something like 1225-->1190=a, 1190-->1200=b, 1200-->1170=c), I think the long-side has an edge unless 1170 becomes resistance. The chink in the bullish armor is the System cycle low expected around Nov 1+/- and mid-cycle low expected around Thanksgiving. My guess is that those cycle lows will be higher lows around key moving averages and the possible short-term USD low will lead to a choppy-sideways SPX for a few weeks, but we must remain aware of the systemic financial risk in the marketplace. From an EW perspective, I'd guess SPX completed wave A at 1225 and is now in a B wave for a week +/- as part of an ABC or ABCXABC. Between now and Thanksgiving (about 5 weeks from now), I suspect we'll stay in a fairly tight range like 1165-1235 since we are expecting 2 lows in that time period and SPX is bumping into 1220-1230 resistance with overbought indicators. Then, maybe we'll get a final surge to 1250-1300 into the 2nd or 3rd week of December as my spending analysis suggests.

In summary, the next 5 weeks are likely to be range bound at 1165-1235, and the System will probably flip between long and short mode based on expected cycle lows and key moving averages and pivots. If the 1165-1235 range is broken, my thesis for a 5-week consolidation is likely wrong, and we'd need to take another look at the big picture. Good luck.