I turned my 1-week family vacation and 1-week work trip into a 1-month respite from the blog and trading. Much needed. I hope the new year is treating you well. I am in the process of revamping my System utilizing a lot of the same indicators but objectifying and automating it to a larger degree based on lessons learned. Until I am finished over the next month or two, I will post much less frequently and with more brevity.
As a non-System swing trade, I just opened a 50% short position today at SPX 1327.27 and plan to fill it out in the 1340s or 1315ish. My last short trade at 1266 was stopped out at 1273 as stated.
Although I called the bottom near 1202 and expected a rally into Christmas or possibly the first few days of 2012, I certainly did not expect the rally to last this long or this high. My public SPX weekly chart regarding the consumer spending indicator projected a top in mid-December and/or late January. This is week 21 in a probable 20-23 week spending lag. The previous 7 cases since 2007 all produced 8%+ drops lasting 4+ weeks.
My System cycle called for a momentum bottom on Jan 19 +/- 10 days which means SPX is still in danger of downside pressure into February 2nd or so. As usual, some combination of a TRIN spike up, VIX spike up, TICK spike down and NYAD bottom pattern should signal an SPX bottom within a couple days. Obviously, that means the cycle bottom could occur above the 20dSMA and possibly above 1300 which would put the 1371 top in jeopardy unless the next cycle is weak or left-translated in which case 1180-1220 or 1080-1120 would be in play as a late March or early April cycle bottom.
The Dow is less than 1% from a multi-year high and that should provide resistance, so it seems unlikely SPX will make a run at 1371 right now especially being so overbought with bullish sentiment rampant. The spending lag suggests a significant top should occur within the next 2-3 weeks max, so if SPX pulls back for 3-5 days, that will only leave it 1-2 weeks to make a run at 1371. At this point, I am less concerned about price levels and more focused on timing. SPX should form a low in the next week or so and a high within 2-3 weeks. That high could be a higher high near 1371 or a lower high. Regardless, I still think a very big 8%+ down move is likely in Feb/Mar. Obama's home refinance proposal and the Fed's late-2014 ZIRP proposal are likely to hurt banks, distort the economy further and not exactly inspire confidence, but it's difficult to say how long each sugar high can last and how long Europe can kick the can before it explodes. Good luck.
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