Tues 5/8/2012. USD coiling.

(Update Tue 5/15/12 9:15AM EST)
USD has surpassed its previous high which breaks the triangle pattern I was following. Either USD is forming a larger triangle in which case USD/SPX should continue to chop around for a couple months OR USD is about to break out of a 1-2-1-2. Both scenarios are ultimately USD bullish and SPX bearish with the only difference being timing over the next 2-4 months. Both scenarios likely call for a USD breather in the near-term.

What appeared to be a 5-wave SPX completion for 1415-->1343 finishing a 3-3-5 from 1422 may have only been 1 of 5. If so, SPX may be completing an EDT 5th today down to 1325-1335. Even if we get a sizable and possibly explosive bounce, the break of 1340 is disconcerting for the bullish scenario calling for another wave to 1410-1450. There is a ton of resistance at 1375-1390 so that will be the test. My work calls for a bad June/July with a probable important high during the week of June 4th +/- 1 week. I am dealing with a personal issue from last week probably through much of June that will not allow me to post as often. Good luck.

(Update Wed 5/9/12 12PM EST)
Another intraday reversal. This morning, SPX met all the "ideal" criteria for a long trade as mentioned the other day: VIX pierced its upper BB20, SPX fell to the 1340s preferably 1340-1345, TRIN>2 yesterday and USD rose near $80.25 to possible complete wave D of a 5-month sideways triangle. I am now 100% long with an average entry of 1348-1349. In case an EDT allows SPX to go a little lower, I'll use a stop a few pts below 1340. A dream can turn into a nightmare, but, if SPX completed 5 waves down from 1415, we should at least get a 50-62% retracement to 1379-1388+, and my 3-3-5 flat count from 1422 suggests a new high is possible with Dow forming an EDT to a slight new high around the first week of June +/-. If SPX does rally now, there is a lot of price-volume resistance and moving averages near 1380-1390 right near the Fib 50-62% retracement zone, so it's highly likely SPX will pullback from there and that's when we'll find out if the bearish or bullish counts are active. Also, keep in mind max option pain for May 18 OPEX was around 1380-1400 recently. If SPX breaks much below 1340, I'll re-think my position. Good luck.

(Update Wed 5/9/12 8:10AM EST)
It is possible (even using my old DRSI tool) to count the Tuesday afternoon rally as wave 4 from 1415. So, yesterday's low may be broken, but, in that scenario, w5=w1 at 1345 and I still expect 1340ish to hold. Either way, I am using the 3-3-5 flat count from 1422, so I'm anticipating a retest of 1422 around the week of June 4th +/- 1 week. However, more bearish scenarios are possible especially if 1340 is breached by much. I will likely go from 50% to 100% long at 1340-1345, but I should mention that 4-hour candle resistance was not broken on yesterday's rally so it's a risky trade and not recommended for others. Good luck.

(Update Tues 5/8/12 9:50AM EST)
SPX did not quite pierce 1357 after the open. There is a possibility that it has completed wave 5 of C or will barely break 1357 to do so. If so, SPX has a much better shot at retesting 1410-1450 while Dow makes a slight new high to complete an EDT. It's hard to say whether a breach of SPX 1357 would lead to a cascade lower to 1340 or 1320, but caution is warranted for bears too because some posd is building up and we have a potentially completed 3-3-5 flat from 1422 near recent support and within 3 trading days of my projected May 3 cycle low. I think a ton of shorts and hedges will cover if SPX rallies much from here, so be careful. I sold half my short position just below 1360 and will sell most or all of the rest on a piercing of 1357. I may even go long if I see the right candle setup. Good luck.

P.S. Just sold all shorts at 1353 and went long 50%. I may add to that position in the lower 1340s and sell it if today's close smells funny or SPX rallies near 1380. Obviously, I'm now expecting 1340ish to hold this week with uncertainty as to how high the next rally will go. An ideal SPX long entry would be in the 1340s with USD at 80-80.25 and VIX at its upper BB20 and TRIN>2, but you don't always get "ideal" so I started a position a few pts early. 
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The US Dollar continues to coil. Since the $81.78 high in January, USD has been in a $3 range much like May-Sep 2011. To me, it looks like a sideways triangle. 81.78-->78.10=A, 78.10-->80.74=B, 80.74-->78.60=C with D underway.

If I am correct, USD currently needs to complete b and c of D without exceeding $80.74. That should occur over the next few days. Then, USD would fall one more time for 1-3 weeks without falling below $78.10. After that, USD is likely to explode higher. It only took 1 month to rally $6 in Sep 2011 and $5 in Nov 2011.

Both previous cases caused SPX to lose more than 10%. Likely, the next big USD rally will be a wave C to finish an ABCXABC (WXY) from May 2011, but there is a possibility it will be the heart of a 1212123!!! That would be scary for the stock market and almost certainly lead to a retest of 2011 lows. However, keep in mind, triangles are not common for wave 2 psychology and curencies tend to move more slowly than stocks, so we should conservatively project one more wave C up, not a wave 3.

Regardless, since the 123 and ABC scenarios for USD will look nearly identical for the next 2 months, let's analyze how they would impact SPX assuming an inverse relationship.

USD wave DofBofY this week = SPX 1300-1360 with 1360, 1340 and 1320 providing good support and 1340 having the most technical convergence
USD wave EofBofY late May = SPX lower high to 1380-1410 (a new high is possible but each triangle wave gets smaller so unlikely)
USD wave CofY June/July = SPX 10%+ drop to break the 200dSMA and possibly retest the 2011 lows

I gave 5 or 6 reasons why I expected a severe SPX drop in June/July. You can add USD to the list. The last week of May and the first week or two of June appear to be D-Day. The expiration of Operation Twist is also supportive of this scenario, but, of course, that could change if the Fed takes action. So, the June 20 and July 31 FOMC announcements are opportunities for intermediate-term bottoms. Good luck.