(Update Thu 12/8/11 3:30PM EST)
TRIN=2.7 currently. In recent months, a TRIN of 2-5 has been a harbinger of further downside for another 1-3 days with a possible 1-day pause first. The current NYADV lightning bolt pattern suggests an imminent pause, but those are daily values which can change by the close. For the last 7 days, SPX formed numerous pivots at 1240-1250 and numerous more at 1260-1270. It would not be unusual for SPX to backtest 1240-1250 before resuming the downtrend, but bears could lose control at 1251+. Intraday DRSI is not favoring a 5-wave structure from 1267 to 1236, so I'd favor a corrective or 1-2-1-2 structure in which case 1252.62 should probably not be surpassed. If it is surpassed, the rally could easily resume into the Dec 13 Fed meeting or further. More Europe jawboning expected overnight...will that dog hunt? Good luck.
4PM: BTW, if my triangle count is in play, I'd still expect a decent bounce from 1210-1230 (15-20+ pts) followed by a test of the 1180s. And, if the zigzag to 1293+ is still in play, I'd expect an imminent bounce but probably from 1210-1230. Things will get dicey for bulls below 1220 and especially below 1210. It looks like the Dec 13 FOMC meeting is setting up to be the deciding factor in the short-term bullish/bearish counts. My inclination is still towards the triangle count rather than the 1293+ zigzag count, because I'm doubtful the Fed will do much except maybe cut the discount rate (which was largely expected 1 week ago) and jawbone which will probably be disappointing. The Fed will apparently have more dovish member changes in the new year, so they seem much more likely to do something at their Jan 25 or March meeting. But, who knows when it comes to the central banks. Also, there is still the potential for a payroll tax cut agreement by Congress in the coming days so that will probably be good for a spike. However, once we get through Dec 8-13 and the payroll tax, it seems like everybody will go on vacation and there will be little anticipated catalysts for the market until later in January, but I still suspect the light volume, tax cut extension and window dressing activities should keep things from imploding until January. TRIN looks like it is closing above 5 which should limit downside for a couple days. SPX is more susceptible to gap up now, but, if SPX drops on Friday, I suspect 1210-1230 (and likely 1220-1230) will provide good support probably into FOMC Tuesday. Good luck.
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December 8-13 is upon us with all the Europe and Fed news you can stand. The discretionary spending history visualized on my public weekly chart is projecting an SPX top this week or next. And, as of December 1st, there was a short-term spending pivot high confirmed for the end of October, and that usually leads to a smaller top 4-6 weeks later (i.e. this week or next). But, as we've seen, a lot can happen in 10 days. The System cycle is still in its first half and the configuration is mostly bullish, but the 200dSMA is important and common historical resistance in bear markets. So, the big question is whether the news of the next few days will produce a final SPX pop to 1290-1320 or the beginning of the next bear market downtrend.
In either case, I still expect SPX to hold up reasonably well at 1200-1260+ into end of year resulting in a positive year for Dow and/or SPX due to seasonality, window dressing, the history of 3rd presidential years, mixed sentiment etc. That really doesn't preclude any scenario other than a mini-crash...at least until January. The confidence in a Christmas rally has been heating up and talk of a crash has been cooling down although I have been seeing more references to a sharp January drop and many blogs are still projecting 2012 weakness. If I put on a contrarian hat, I'd have to be wary of a strong Christmas rally and wary of a big January crash. The 2 scenarios that would seem to work best are the 2 preferred counts on my public daily chart: a triangle staying below 1293 or a zigzag just above 1293 into mid-December with a larger drop than most expect in late December leaving January bears to chase the 2nd half of the downtrend and get trapped looking for more. Let's see how the next few days play out.
The System was stopped out at 1258 for just under a 1% loss. All the gyrations above 1260 have now made the rally from 1159 not look so impulsive as confirmed by DRSI, so the final zigzag leg up or the next large triangle leg down would probably fit best right now. The System will re-enter short once 1251.88 is reached and then a 30% retrace occurs with a stop initially above 1267. I'll try to provide more details later today. Good luck.
Update Thu 12/8/11 9:55AM EST: The System is now short from 1256. It's a little unsettling for bears to see SPX hanging well above yesterday's low after the ECB disappointment, so I think bears need SPX below 1245 to break the dam temporarily. DRSI now suggests that the 1159-1267 rally is not a 5-waver. That structure ended an ABC or is still in wave B. Hence, SPX could have completed triangle wave CofB from 1371 or may still be consolidating for a final zigzag C wave up to 1293+. See my public daily chart for counts. Let's see how things shape up today. Just keep in mind that there is strong risk for a significant top this week or next, so this is a dicey situation. Good luck.
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