Wed 12/26/2012. Daily Update.

Update Wed 12/26/2012 3PM EST
Can you tell I'm bored at home today? I've made multiple intraday posts for the first time in a while. Usually, less is more but I can't resist today. SPX has now retraced about 60% of today's drop. The 1416 low is just above the 1405-1415 target zone I gave, so the triangle breakdown and overall correction could be completed. However, that's not the sixth sense I get right now especially if there is no fiscal cliff deal this week. If SPX drops further, it is likely forming 3of5 down OR 3ofC/Y OR possibly even 3of3of3of3 from 1448. The latter would almost certainly test 1385 and possibly 1343. The former 2 should still hold 1405-1415, so 1398/1400 is somewhat of a dividing line for the immediate bull/bear case. In all 3 of those cases which assume the short-term downtrend is not done, SPX should initially fall to 1401-1414 likely tomorrow followed by another small jaunt lower so the previous 1400ish and 1408ish targets would certainly be in play. One of a few stats supporting a large bounce from 1400+ is the small BOW day on Monday and so far today, although the low volume and special factors probably make all stats less reliable for the time being. The trigger level for a long trade has now fallen to 1429.43. Good luck.

Update Wed 12/26/2012 12:30PM EST
Although this blog will follow where the System leads us, the big picture technical setup is looking good for bears. The weekly RSI/MACD and daily RSI/MACD negative divergences cover multiple years. The hourly negd covers 1 month, and now we have posd on all of those levels meaning RSI/MACD are setting lower lows while price has not even done so. That increases the odds for a break of 1412, 1398 and even 1343. Many sentiment measures have also reached bullish extremes, yet the picture is not so clear as to make bulls panic yet. That opens up the possibility for further SPX leakage before eventual panic sets in thus allowing for more ultimate downside. Today, TRIN is pretty low with VIX breaking out. Of course, none of that precludes the scenarios I laid out below meaning there could still be another failed rally or two in the works before things fall apart. Or there could even be a temporary stick save to higher highs. But, the big picture ain't looking pretty. Good luck.
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Current SPX Position: None
Next Action: Go long at 1443.7
System Score: 9=Bullish=Trend Score + Turn Score=9-0

The System is stuck without a position. If SPX rallies, the System will not go long until 1444 and I'd rather not see that scenario due to risk-reward. If SPX makes a lower hourly closing low, the System will have a better risk-reward long entry if there is a 4hr resistance break at 1415-1420+. Below that gets dicier.

Although my pattern-reading does not match the System success, it sure looks like SPX has been triangulating the last 2+ trading days. The book odds favor continuation of the previous short-term trend which was down. If you believe the triangle is a wave B, then C=A at 1408ish. If you believe the triangle is a wave 4, then 5=1 at 1413ish and 5=3 at 1408ish. There is a recent intraday pivot at 1412. If you believe the triangle is actually a set of 1-2s, a wave 3 being longest would likely take SPX to 1400ish or lower. So, SPX is likely to rally strongly to 1430+ if it holds 1405-1415 whether due to an ABC correction ending or an impulsive structure completing. However, testing 1400 could indicate a more impulsive breakdown. That fits the System technical situation too...1415-1420 is somewhat a dividing line and the System will remain bullish if that area is not pierced for too long. It just so happens that max option pain has risen to 1430+, so a rally back to that level by year end or a runaway breakdown have higher odds than other scenarios, and once again those 2 scenarios match the pattern and System technicals. I suppose bad or good news about a fiscal cliff deal will drive that decision in the next few days. Good luck.