Current SPX Position: Long at 1506.15
Next Action: Stop at 1509.16 (will be lowered to 1497 if SPX gaps down well below 1509)
System Score: 10+=Bullish=Trend Score + Turn Score=9+4
The Score has now turned uber-bullish and, based on how my scoring works, it's probably going to take both price (sub-1510) and time (late Tuesday+) for the Score to become neutral/bearish OR it's going to take a strong 2-3 day rally to retest 1531ish. Based on a possible LDT wave A 1497-->1516 and resistance at 1516, I suspect a wave B drop on Monday to 1500-1505 followed by a wave C rally into the 1520s on Tues/Wed. However, the choppy LDT can also be a series of 1-2s in which case SPX will hold above 1511 and retest 1531 pretty quickly. We should know early Monday. Either way, I think those 2 scenarios setup the System perfectly to become bearish again on Tues/Wed with the more bearish scenario obviously being the LDT one.
I am still tracking 1 of 2 larger scenarios. Based on the way SPX is holding up and my spending indicator, I am beginning to lean towards the new high/retest in Mar/Apr in which case the next SPX drop is likely to hold 1425-1475 and probably 1450-1475 to overlap the September high. The more bearish scenario would be a drop to 1375-1425 followed by a failed rally back up near 1500. Perhaps the March 8th jobs report will be good timing for a bottom +/- a day. If the new high scenario plays out in late March or April finally concluding the 1yr and 3yr EDTs, I expect a scary drop after that followed by choppiness into summer and then a severe late summer or fall swoon. No matter how you slice it I believe SPX upside is VERY limited now with HUGE downside risk and volatility coming.
Currently, the SPX is flirting with the 20dSMA which supports bearishness as indicators get overbought, but the Score should have a more bearish slant as the 20dSMA is left behind and the 50dSMA is tested (currently 1476). I am also keeping my eye on discretionary spending (see link to right and chart earlier this week). It has leveled off at a low level for the last few months. If it takes another dive in Feb/Mar, that will indicate a very serious SPX bottom will occur 5-6 months out (I'm talking 1100-1300 for starters) and that is exactly what I expect given recent announcements from WalMart and Dollar retailers as well as the payroll tax, sequester, rising gas prices and health care act taking a toll. If discretionary spending rallies instead, that should put a much higher floor under the swoon I am projecting.
I could have kept the stop at 1497, but 4hr support is now pretty tight at 1509 and I think a retest of 1500ish over a full Monday is possible in which case, if a rally ensues, we should still be able to get back in near 1509 without taking on 12pts more risk to 1497. If Monday gaps down well below 1509, I will likely lower the stop to 1497. Good luck.
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