Thu 11/3/11. System Update.

(Update Wed 11/8/11 12:15PM EST)
The System is short at 1251 after a 30% retracement of 1278 with stop at 1278. I can't say I'm very comfortable with this one due to the potential drawdown, but one more push down does fit my EW and cycle scenarios and near break-even 1252ish will become the System resistance/stop if SPX closes an hour below 1242. Although SPX already reached the triangle 1220-1240 target, strong drops like we had this morning are typically followed by a retest at a minimum to form an ABC and 1190-1200 is a possibility in the zigzag scenario from 1293. Essentially, I'm saying I don't like the possible large drawdown, but I like the odds for a winning trade. Good luck.

(Update Wed 11/8/11 9:45PM EST)
The US Dollar is seriously worth watching. It has formed what could be counted as a 1-2-1-2-1-2 over the last 6 months (although the recent correction could transition into an irregular flat or triangle for a few more weeks), bounced off strong support at $76-77 and rallied above its recent high putting it in a bullish configuration above its 20dSMA, 50dSMA and 200dSMA in a daily uptrend. Having said that, SPX is still in a bullish configuration, but once it crosses below 1240 where daily support and the 20dSMA reside, the only thing preventing a bearish configuration is the 50dSMA at 1200ish. VIX is already at that latter stage with 34 providing daily resistance and its 50dSMA. If SPX intends to make a slightly higher/lower high in December as I've been conjecturing based on spending analyses, we will almost certainly not see SPX below 1190-1200 and VIX above 34ish nor would we see the US Dollar above $79.84 (currently at 77.75). We all know from 2008, 2010 and 2011 that financial issues and HFT tend to snowball quickly with temporary stick saves every few weeks, so, I'll be very cautious with any long positions from here on out knowing that upside over the next 6-12 months is probably 5-10% with downside 20-50%. For now, though, I'll stick with the scenario that SPX will bottom in a zigzag within the next few days or a triangle within the next 2 weeks before retesting 1293. Maybe there is one more trick up the sleeve of the EU, but I think the EU and US financial stuff is coming to a head before end of year. Good luck.

(Update Wed 11/8/11 8AM EST)
The System was stopped out at 1272 for a 1.2% loss. Unfortunately, it may not be able to join the next downtrend due to futures indicating a 2%+ gap down. The System requires a 30% retracement in such situations. I've been expecting an ABC down from 1293 with 1215 on Nov 1st being the momentum cycle low and then a price low this week. But, Daneric charted a possible triangle pattern that would fit well with the recent action. If we get a zigzag ABC from 1293, the downside target is likely somewhere between 1190 and 1215 with the 50dSMA at 1200ish and then the end-of-November low would likely be BofY from 1075. If we get a sideways triangle, the next low is likely at 1220-1240 just below the 20dSMA retracing 60-80% of the 1215 low with another low around 1240 max pain on OPEX Nov 19th or into Thanksgiving. The System will switch into long mode on the next set of daily bottoming indicators. SPX should remain in the 1200-1300 range for a few more weeks, and then I suspect we'll get a false breakout in December like we had at the 1075 bottom in October. However, the European situation is cancerous and a possible US Dollar wave 3 rally combined with sub-1190 SPX would be a big warning sign for a more bearish scenario. Good luck.

(Update Tues 11/8/11 9:30AM EST)

Nothing changed yesterday. Today, SPX gapped over resistance at 1263.21, so, by standard procedure, I've raised the System stop to 1272 which is .7% percent higher at a double intraday pivot (1271.x) from last week and at the upper end of an OEW pivot range just 1pt shy of the 200dSMA. If SPX exceeds 1272, the System will nearly erase the previous winning trade by taking a 15pt net loss and SPX will have a good chance of retesting 1293. For now, the rally from 1215 still looks corrective and, as long as resistance holds, I expect a retest of 1215 and possibly the 50dSMA at sub-1200. Good luck.

(Update Fri 11/4/11 10:50AM EST)
As planned, the System opened a new short position shortly after the open at 1252.4 and took 25% profit at 1239. There is a potential H&S neckline at 1216-1223 depending on how you draw it, there is an OEW pivot at 1222 and 1220-1227 has been long-time s/r. So, whether the current drop is wave 2 of C from 1075 or wave C of B from 1075, it looks likely that SPX will pierce its 20dSMA to the lower 1220s. Once SPX rises above 1263 or falls to the 1220s, we can reevaluate the technicals. Good luck.

(Update Fri 11/4/11 9AM EST)
SPX formed a possible 2-day wedge into 1263 yesterday. That can be an LDT in which case we'd need to watch out for a higher wave 2 low, but, for now, I'm expecting a lower low to complete an ABC from 1293. System support rose to 1254.92, so a short entry would be made there with stop at 1263.21. If SPX gaps below 1255, the System will try to enter short at 1250-1255, and any gap below 1250 would require a 30% retracement of 1263 before entry. 25% of position profits will be taken for every 1% SPX drop with 25% reloads on ~10pt bounces. Good luck.
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The System was stopped out at 1253.31 for an approximate 1.5% profit after SPX filled Tuesday's gap down. I considered raising the stop as allowed when an opening gap approaches s/r, but SPX already pulled back significantly and there is a potentially low-risk short entry at 2-candle support just above 1247 if SPX decides to turn back down. Until I have time to re-evaluate tonight, the System will stay in short mode. DRSI confirmed that the drop from 1293 to 1215 completed a wave structure (likely 5 waves), so I am still leaning towards the current choppy rally being a wave B with a lower C-wave low at 1180-1210 to come. An impulsive rally from here could change my mind since the minimum (but not ideal) cycle bottoming indicators were reached at 1215 on the exact projected cycle low date of Nov 1. The System cycles measure momentum lows and they often differ from price lows by a few days. We'll see. The monthly jobs number will be released tomorrow but I'm not expecting any surprises, so most eyes will probably stay on Europe and the weekend summit. Good luck.