1. Sentiment. It's interesting to note that index traders have gotten very bearish on today's rally while equity traders have gotten mildly bullish. VIX has dropped a few percent indicating reduced fear compared to yesterday at much higher levels. CPCE was one of my bottoming indicators that never triggered suggesting not enough dumb money bearishness. USD still looks like it needs one more high and most people consider the currency traders smart money with a negative correlation between USD and SPX in recent years. This site agrees...http://www.elliottwaveforex.com/2011/10/04/usd-index-forex-elliott-wave-analysis-%E2%80%93-xxth-xxxxxx-2011-5/#more-24761. TRIN has fallen to 1 which is below neutral. TICK is positive. NYADV has bounced despite the SPX loss but not much. Those indicators suggest that breadth increased today which is normally good except when you need to see some capitulation. Maybe we'll get that on Wednesday with a scissor NYADV formation.
2. 1102 overlap, 1114 overlap. I want you to remember what Mr. Market did today. It made SPX overlap the old August 1101 low and recent 1102 low which probably shook off some bears. In fact, I was going to use 1102 as a stop until I saw the wave, volume and technical indicator action as SPX rallied to 1102. To me, if SPX goes on to make another low below 1075 and then rallies, SPX 1114 becomes the level that would separate my preferred bearish counts on my public daily chart. An overlap would suggest the wave 4 high was at 1231 followed by a wedge which should have one more low, while no overlap would favor wave 4 from 1371/1356 ending at 1220 with a standard 5-wave impulse lower. Mr. Market may choose to narrowly overlap 1114 (maybe to the popular 1121 area) to shake off bears and then freak out bulls with one more quick low.
3. Max pain for October OPEX is near 1190. That max pain level may drop to 1170-1180 if SPX falls further, but I would not put it past Mr. Market to rally to 1170+ by October 22nd. From the 1010-1070 area, that would be a 10%+ rally in 2 weeks. It would also fit my preliminary projections (will solidify this weekend or probably next) that call for a rally into late October, a drop into mid-November and a rally into mid-December or January. C waves usually drag out longer than A waves especially when the A wave is coming off an extremely oversold bottom. So, there is a potential rocket ride starting within the next few days if you are brave enough to take the risk of no Greece/bank default.
4. Downside SPX targets. Of course, we established the 1090s, 1050s and 1010s as the likeliest target zones many weeks ago and SPX has already fulfilled the minimum. Recently, my analyses have been honing in on the 1050s. The 1010s increased in probability during the last 2 days until the late-day rally. But, let's see what the most recent evidence tells us. If I conservatively say 1196-->1121=75pts covered the wave 1s in the current downtrend and if I assume that 1103 ends the corresponding wave 4, then 5=1 at 1028 and 5=1*.618 at 1056ish. There is an OEW pivot at 1058 and another Fib at 1056. So, 1055-1060 is solidified as a good target near-term. addendum: After the late-day rally, I still think the 1050s are possible but the downtrend from 1196 is over, so the logic used to derive the 1056 number is eliminated.
5. Today's summary. The action was wild with a 25pt drop, 28pt rally, 24pt drop and 45+pt rally. The System and I were stopped out. Today's rally looks like a 3-3-5 flat to me, but bears have to be careful. I just got through mentioning 1114 overlap which just occurred, but I was expecting another low before that might happen. The 1114 overlap brings my wedge count into the forefront (not the wedge seen all over the web recently which called for a bottom at 1090ish). My wedge suggests that 1076 completed 3of5 with one more ABC lower probably to 1055-1060. If today's late day rumor is unsubstantiated or a negative news item comes out, I suspect we could get down there pretty quickly. But, we must consider the possibility that the bottom is in. There was enough evidence yesterday for a bottom even though I would have liked to see a little more capitulation which we may still get. I am not placing the System in long mode quite yet but will consider doing so Wed/Thu/Fri and will probably go short 1 more time on the next System signal depending on what I see tomorrow. In the mean time, it is possible for SPX to rally to overlap 1136 first although I doubt it. If you didn't believe the possibility already, the late-day rally should make you believe that a rally to 1170-1190+ by October 22nd OPEX is very possible even if SPX drops to the 1050s first.
At this point, I'll be analyzing the technicals to determine if SPX will make one more low or not. If we see SPX pull back 5-15pts tomorrow in the morning and then make a new high, what looked like a 3-3-5 flat may start looking more like a 1-2-3-4-5 in which case SPX would probably only fall back to 1090-1110 before rallying further to complete an ABC in the 1040s or a new bull leg. Either way, all of my timing work suggests that SPX is highly unlikely to downtrend past Fri/Mon, so bears probably need to get back down below 1100 by Thursday and bulls need to get back to the 1150s or stay above 1090 through the Friday jobs report. Interestingly, both of my possible wedge count (1 from 1231, 1 from 1220) have bottom channels passing through 1055-1065 on Thu/Fri and overthrow is possible so that does support 1055-1060 as a downside target as mentioned above in point #4.
Good luck.
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