Thu 7/19/12. Spending Alert!

I believe discretionary spending has hit its lowest point in 1 year and reached a contractionary print on Tuesday. Check out the Weighted Composite Index (3rd chart) at http://www.consumerindexes.com/

That ain't good given inflation or relative performance. It only confirms the call I made at the beginning of the month that a sharp but short-lived SPX bottom should be seen near end of month (typically 4-6 weeks after a pivot low is broken). Given that expected low plus the spending-projected SPX top for the week of July 9th +/- 1 week (or alternative is Aug13-Sep7) and my cycle low projections for July 30, Aug 17 and Sep 6 +/-, I believe we are setup for 1 of 2 scenarios.

1. Bullish into late August. SPX trades lower into end of month holding the 1360-1370 or 1300-1320 zone depending on how much further SPX rallies in the next few days. Then, SPX rallies to new highs above 1422 with a pit stop around August OPEX. This would likely require an ultimate favorable reaction to the Fed and August 3rd jobs report although the German Court may interject too. Still, this top would be doomed to fail.

2. Bearish until Sep/Oct. Without rallying much above current levels, SPX trades lower into end of month possibly holding 1300-1320 but not necessarily. Then, after a rally in the last couple days of the month and possibly a Fed-fake, SPX continues lower in an OPEX runaway into August 17th followed by a small bounce and then further drop into Labor Day at which point the bear market and a recession may be fully recognized allowing for a temporary contrarian sentiment bounce.

Spending history tells me we will get one of these large pullbacks (almost always 8%+). T Theory history tells me we're falling off a bearish T into what should become a buyer's vacuum as the next bear market is recognized and side-stepped. The world's economic fundamentals seem to be pointing the same direction. . Having said that, I am aware of the market's pavlovian relationship with the Fed and I am aware that Mr. Market is the ultimate decider with all key moving averages now turned up for the first time in a while typically portending bullish action once we get through a few weeks of consolidation, so the bears need to turn the technical tide quickly and the US Dollar needs to bottom and act like it's been coiling in nested 1-2s if the more bearish SPX scenario is to play out. Good luck.