(Update Fri 12/16/11 3PM EST)
Is the SPX rally over at 1231? Could be. My gut says to expect one more rally to the 1230s but time and price rally targets have been satisfied and 1180-1200 should be reached within a few days regardless. Although sentiment extremes cannot be ignored, I can almost guarantee you we will continue to set sentiment, streak and other stock market records in 2012 as we have since 2007, so they cannot be given too much weight. Currently, the USD breakout has held although I'm expecting a couple backtests over the next couple weeks before it blasts off or breaks down, and that will be the trend to jump on regardless of certain sentiment readings. I know there are other signals to the contrary like CPCE, but short-term VIX sure seems to indicate falling fear some of which I expect to reappear briefly next week. The System took 50% profit on its cautious long at 1231 (a 1% gain) and reloaded long at 1219 (an 8-12pt pullback) with stop at 1214.54 which would produce a draw at this point. I'll try to post more before the Monday open. Good luck and great weekend!
(Update Thu 12/15/11 8PM EST)
Not much changed today. I'm still expecting SPX 1180-1200 within a few days, and a trip to the 1230s around Friday OPEX is still very possible too. Seasonally, the next 3 days for SPX are below average, but 6 of the top 8 days for December come next. A System mid-cycle low next week would also bode well for a Santa rally. You know I'm watching the US Dollar and SPX upper triangle line to see if my thesis gets invalidated, but I fully expect the wheels to come off the bull bus in January. Good luck.
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About 10 days ago, I did an exercise to find Fib/pivot support clusters. I found them at 1220-1230, 1210ish and the 1180s. Since 1200 is a 61.8% retracement of 1159-->1267, I've been using 1180-1200 for the triangle leg D target. Well, SPX bounced off 1209.83 yesterday morning and 1209.47 yesterday afternoon. Here's why I identified 1210ish.
1. 38.2% Fib retracement of 1293-->1159=1209.81
2. 61.8% Fib retracement of 1075-->1293=1209.43
3. 50% retracement of 1159-->1267=1212.85
4. Pivot low on Nov 17=1209.43
5. 6 trading days of price congestion in mid-October=1210ish
6. At the time, the 50dSMA was around 1209.
Of course, support/resistance clusters don't always work, but, in my experience. they work enough to make them valuable for trading. I don't know for sure why that is, but my best guess is that there are small percentage groups of traders/algorithms each watching Fibs, pivots, moving averages, price-volume and other indicators and when those indicators cluster together, you get a surge in trading that usually causes a directional move.
The US Dollar (and the largely inversely correlated Euro) is the key to what happens next in SPX. I can make a pattern, mid-cycle, support-cluster and technical indicator argument for another low in the 1180s which would best fit my preferred triangle count from 1075. However, for SPX to experience a triangle breakdown by early January and retest 1050-1100 in the next 2 months, I strongly believe the US Dollar needs to hold its breakout. The previous USD double top line is now at 79.65ish and the broken October high was 79.84. Those levels can be pierced but cannot become resistance again. In line with an SPX triangle still reaching its apex over the next couple weeks, I'd like to see USD bounce between $79.50 and $81.50 consolidating and cooling off the excessive bullish sentiment without any technical damage. It's a little early to call, but a scenario that would fit perfectly with my SPX public daily chart projection and excessive USD bullishness would be a choppy USD diagonal triangle ending in late January, falling back into March and then really blasting off. Short-term, all eyes should be on USD 79.50-80. Good luck.
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