Wed 8/8/12. Selling on Strength.

(Update Wed 8/8/12 10:20AM EST)
S2=5=Trend Score + Turn Score=10-5=neutral.
So, the System will enter a half-size short position immediately if support is broken at 1393.81, but, given the neutral score, unless SPX were to drop into the 1360s or maybe 1370s to cause technical damage, the System could easily turn around and go long if SPX rallies above 4-hour resistance after that. If SPX rallies above 1407, the System entry point for a short position would rise with 4-hour support. Of course, given the SOS data below as well as numerous intra-market and cross-market divergences, I think a large pullback is just a matter of time. Good luck.
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SPY Selling on Strength often precedes SPX tops
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html?mod=mdc_pastcalendar


Here are the large SOS days since March and what happened next.

51 pts down, 3 days after...
Jul 19 =  -51
Jul 18 = -105

8pts up, 50 pts down, 7 days after...
Jul  2 = -145

54pts down, 4 days after...
Jun 19 =  -70
Jun 18 = -178

10 pts up, 29 pts down, 1-3 days after...
Jun  8 = -172
Jun  6 = -263
Jun  5 =  -72

13 pts up, 123 pts down, 16 days after...
Apr 26 = -103

11 pts up, 65 pts down, 6 days after...
Mar 30 =  -85

11 pts up, 27 pts down, 6 days after...
Mar 15 = -199

up, up, up after...
Mar  7 = -118

And, last but not least, the current SOS readings.
Aug  7 = -201

Aug  6 =  -99
Aug  3 =  -74


So, what does it all mean for trading today?  The data for the 8 recent clusters tells us that the average response has been for SPX to rise no more than 1% for another day or two and then fall 4%+ within a total of 3-7 trading days. There was only 1 occurrence which never really corrected within the subsequent 2 or 3 days, and that occurrence plus 1 of the 2 other weak SOS corrections occurred after days or weeks of downtrending when short-covering and sideline cash was enough to overcome the large selling. That is not the case today. The last 3 SOS clusters have led to 4% drops within 3-7 trading days and the late March and April SOS signals led to 5-10% corrections over 6-16 trading days. Interestingly, 3 of the previous 8 SOS clusters occurred in the SPX 1400-1410 range just as the SOS reading did today. 2 of those 3 cases ended badly, but 1 led to churning sideways-to-up 19pts over 12 days.

The bottom line is that recent SOS evidence favors an imminent SPX correction from 1407-1422 to 1350-1370 before the end of next week. It just so happens that current max option pain for OPEX Aug 17th is in the low 1360s and the 50dSMA should rise into the mid-1350s next week and the 38% Fib retracement of 1267 would also reside at 1355-1365 in this scenario. So, it's not hard to paint a scenario where SPX tests the recent 1355 pivot, 50dSMA and 38% Fib next week and then settles into the 1360-1370 max pain region by Aug 17. After that, the door would be open to a 2-4 week drop below 1267 and I think Tony Caldaro would relabel the entire rally as an ABC, but let's see where S2 stands at that point. Currently, the System is neutral after being bullish from 1345. Hope you found that SOS data interesting. Good luck.