Chalk up another sizable SOS day at -66. That's 4 in 6 days and might be the largest cluster this year since I only found 1 other cluster of 3 signals going back through March. You could argue that resets the top delay count meaning another 0 to 2 days could be needed to set a top at 1407-1422, but a retest of 1350-1370 near OPEX August 17th seems likely.
From a fundamental perspective...the economic numbers in the last few weeks have not been very good, but generally better than expected with gas and food prices as well as inflation expectations on the rise. That combined with the Fed already extending Operation Twist through end of year in recognition of the elections which are politically explosive makes any sizable Fed action highly unlikely until Dec/Jan. Jackson Hole and the mid-September FOMC meeting may include jawboning but not much more. And, the best the ECB can likely do until mid-September is jawbone as well with more and more people seeing the writing on the wall as reflected in certain sovereign yields despite the actions already taken. Meanwhile, real-time discretionary consumer spending for the last month or two tells us to expect some negative spending, retail and tax surprises in the next few months. Corporate revenues have been deteriorating for a year or more but companies have limited new hiring as reflected in employment numbers, minimized expenses and squeezed the supply chain. Earnings now appear to have reached a peak likely beginning a new downtrend. Once a large percentage of corporations expect the economy to struggle for more than the summer doldrums, they will have little choice but to begin layoffs again. Unfortunately, this is occurring with unemployment high, wages low and benefits expiring. And the not-so-virtuous cycle begins. So, I think Q3 and Q4 are not likely to be good, and if Congress does not come up with a viable financial plan in Dec/Jan to mitigate the fiscal cliff in Q1 2013, things could get really nasty into March of 2013 or beyond.
If SPX retests 1422 in the coming week, the wheels could come off the stock market almost immediately in Aug/Sep. If SPX retests 1267 first, I still think one more rally to 1420-1500 is possible to complete an ABC from SPX 667 with an EDT C wave, because I expect something big out of Europe whether they try another huge dope injection or cutting off a limb or two to save the body. But, another large wave 2 retracement is equally as likely as a new high. People are trained to buy the dips for nearly 4 years now like Pavlov's dogs and when one finally fails with a weak bounce followed by another weak bounce, watch out for a cascade. In any case, it's no secret that I'm largely negative fundamentally and technically into Dec/Jan at a minimum, but I setup my System to do my level best to trade impartially. That and managing your trades like a business is the key.
The System is short from 1399 with stop at 1415. I will be gone most of the day Friday. Good luck.
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