Tues 11/20/2012. Daily Update.

(Update 4:35PM EST )

Current SPX Position: Short from 1380.82
Next Action: Stop out at 1403.28
Score (0-10): 0=Bearish=Trend Score + Turn Score=3-3

This trade might be tough since it's a light-volume holiday period with bullish seasonality, but I have faith the System will prevail over the coming weeks which, at the current time, look to be bearish. I hope I can lower the stop tomorrow, but we'll see what happens. Yesterday was a SOS day but not today. Good luck.

(Update 1:15PM EST )
Current SPX Position: Short from 1380.82
Next Action: Stop out at 1403.28
Score (0-10): 0=Bearish=Trend Score + Turn Score=1-3

The System is now short. It has not had a position since Thursday awaiting a proper short entry. The Score has dropped to a very bearish 0. I have temporarily placed the stop at 1403.28, which is the level that eliminates the wave 3 scenario described below and it is barely within the 1% stop limit from 4hr resistance. If SPX manages to make a new high and then chops at 1385-1395, I may lower the stop to avoid a large breakout and since the re-entry would probably be 1385-1395+ anyway. Obviously, if SPX trades lower for a few hours, 4hr resistance will drop and thus force me to lower the stop to probably 1390-1395 and then eventually 1380 and lower. Even if SPX falls back to the 1370s, I don't know if it will turn out to be a B wave or the beginning of the next leg down. Good luck.
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Current SPX Position: None
Next Action: Go short at 1379.70
Score (0-10): 1=Bearish=Trend Score + Turn Score=2-1

The short trade entry will rise to 1381-1382 if SPX rallies this morning. In EW terms, it sure looks like SPX has (nearly) completed 5 waves up from 1343, so we should get a triangle consolidation at a minimum and probably a zigzag to 1360-1375 or a deeper flat.

I know the drop from 1475 to 1343 looks choppy and corrective and almost everyone is calling for a really strong bounce, if not new highs. I'm not stupid enough to say that's impossible, and I've even said an EDT to new highs to end the C-wave EDT from 1011 to end the entire ABC from 667 is a possibility. However, I can count SPX 1471 as a failed 5th wave or I can count 1431-->1471(A)-->1426(B)-->1464(C) as a flat in which case it is reasonable to make the case for a 1-2-3 count for 1471-->1343 or a 1-2-1-2-3 count for 1474-->1343. What makes that count more reasonable is that sentiment as measured by VIX, surveys, TRIN etc did not get as extremely bearish at 1343 as we've seen at other intermediate-term bottoms AND we are facing fiscal cliff headwinds and abysmally dropping economic numbers into end of year AND there is hourly NOZO (no overlap zone as typical in wave 3 impulses) at 1403.03-1403.28. So, a fitting scenario would be a choppy 4-5-4-5 decline into end of year matching the 1-2 months taken by the initial waves down followed by some fiscal compromise that leads to a rally starting in late December or January. I suspect the low would fall in the 1270-1330 range, and the rally would be doomed to fail with at least one more 100-200+ pt impulsive downleg needed in 2013 if not a retest of 1000-1100 as I suspect.

The nice part about that scenario is that it is eliminated at 1403.28 (or you could argue 1408.13) while SPX closed at 1387, only 17pts away. So, there is great risk/reward in shorting the 1380s or 1390s if you have conviction in this possibility. Of course, the System will not short until 4hr support is broken and that is the safer way of managing such a trade. This scenario does not preclude 1343-->1387+ being counted as a 5-wave A with a B-C to follow into or slightly beyond Thanksgiving. It just can't overlap 1403/1408. Good luck.