Current SPX Position: Long at 1502.28
Next Action: Stop out and go short at 1497.68
System Score: 5=Neutral=Trend Score + Turn Score=10-5
The System went long at 1502 on Friday. The System does not factor in the big picture, EW, patterns, fundamentals, economics, politics, longer cycles, volume, demographics, monetary policy or news, but all of those are concerning factors in 2013. SPX is potentially completing a 1-year or 3-year EDT near a 13-year resistance level in overbought conditions after a bigger and longer-than-average bull market since March 2009 and after unprecedented "unlimited" QE announcements, fiscal cliff can-kicking, a housing bounce (probably the dead-cat variety) and election conclusion. The following article comes to similar conclusions with VIX as its focus...http://www.safehaven.com/article/28543/high-stock-complacency.
I am not sure what people are looking at that don't believe divergences are in place for a typical bear market setup. My monthly and weekly charts using RSI5, RSI14 and MACD show negative divergences from 2011 while daily charts show negd since 2010! In fact, much of the negd goes back to the 1990s which is why I once used my custom DRSI indicator to prove that SPX had its 3of3 peak in 1999 and has since been engaged in wave 4-5s which will likely continue into the 2030s or 2050s or longer. Some shorter-term negd may be lacking and allow a little further rally, but you shouldn't miss the forest for the trees. Even volume gradually rose during the 2002-2007 bull market while it has gradually declined since 2009. I am not one that thinks the multi-century bull market in the USA is over, but I do believe it's in the final stages likely culminating when China and India demographics have reached a critical stage much like ours have now. Given the length of the previous two wave 2s in the 1930s and 1970s, it is unlikely that the current consolidation is over even if you believe it started in 2000 versus 2007.
I know Tony Caldaro (whom I respect greatly) and a few others believe SPX has been involved in a nested series of 1-2-1-2 waves since 2009 with wave 3 currently in progress. I can't say that's impossible but given my arguments above, I think they are much much more likely a series of A-B waves and Tony may very well ultimately say as much if the market begins a bear market in the next couple weeks or months. I suppose 1343 is the line in the sand for the long-term bullish EW interpretation but 1475 and 1398 are also important.
If the EDT scenario plays out, SPX should not rally much further and we should see a dramatic first drop near 1343-1398 followed by a dead-cat bounce possibly retracing 50-80% on can-kicking news and then an even steeper drop near 1267. This scenario is approaching its apex so I can't see it dragging on beyond the 13-year March/April turning point and EDTs don't usually reach their apex. I've carried on long enough, but, in summary, I am expecting a bear market to commence imminently, although an elimination of the EDT scenario with another surge above the 1520s could forestall that by a few months.
In terms of the System, the Score will likely turn bullish again on the next pullback unless SPX turns the 1480s into resistance before a candle entry presents itself, so a lot will depend on how big the pullback is. I have been back-testing 2 new indicators which could add a little more sensitivity at potential turning points like the current time period and would have prevented or mitigated the biggest losing trades thus far, but I need more time and there is no rush given the System success thus far. And, it might change my Scoring range but I already normalize my current Score to 0-10 anyway. Good luck.
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