Thu 9/27/2012. Daily Update.

Current Position: None
Next Action: Long at 1455.06 (will drop to 1441.61 if SPX closes an hour below 1431.58)
Score (0-10): 10+=Bullish=Trend Score + Turn Score=6+6

You have to admit that I have refrained from many predictions recently, and that is intentional as I've placed trust in my new System. However, I will occasionally throw out scenarios when the puzzle pieces start to form a picture.

Right now, SPX is backtesting its 20dSMA and the 1440ish pivot area. VIX is likewise backtesting its 20dSMA. Yesterday was another huge Buy-on-Weakness day (2nd one this week) which is normally bullish although the last Sell-on-Strength signal (in fact a rare large cluster of them) only produced a few more days of sideways action rather than a drop. My discretionary spending analysis projected a top in early September with a subsequent 8-10%+ drop and the 1475 high on September 14th qualifies. The System Score is currently bullish without a position. The worldwide economic news is recessionary with looming elections, fiscal cliffs, bailouts and bankruptcies. The worldwide central banks are inflationary. Market sentiment by most measures has gotten quite bullish largely due to the Fed backstop, but the undercurrent of skepticism has remained for years since everybody knows the market is artificially propped, wall street has lack of clarity and main street is losing ground to inflation. The last 4 times my Turn Score was so bullish led to 2 immediate rallies, 1 delayed rally after some sideways-down action and 1 delayed drop after some sideways-up action. Seasonality is generally bad for the short-term. Lots of mixed signals.

Here is what would make sense to me over the next month or two.
1. SPX trades sideways-to-up for the next 2-4 days probably testing the 1420s before retesting 1440-1460 with the 20dSMA likely at 1445+ by next Tues/Wed in this scenario. This would work off the oversold indicators, Turn Score and BOW days.
2. SPX falls hard for 1-2 weeks to sub-1400 and probably a 38-62% retrace at 1345-1395. 1350ish would be an 8%+ drop as projected by the spending lag.
3. At that point. SPX would be poised for a large rally, but the Trend Score would be extremely bearish, so any rally would be highly likely to fail.
4. Then, SPX would probably test/pierce the 200dSMA and make a decision about how bearish it's going to get.

Of course, we are going to follow the System, and QE3 and the BOW days cannot be ignored as supportive of new highs. But, I also cannot ignore all the bearish factors mentioned above, so I expect a few more days of consolidation to setup the moving averages and other technicals for failure. Of course, front-running is not a good idea, so we'll wait for a System signal which I fully expect we'll get when the time is right. Good luck.