Current SPX Position: Short at 1646.69
Next Action: Stop above 4hr resistance at 1611
System Score: 3=Bearish=Trend Score + Turn Score=3-0
Proposed New Score: 32%=Bearish=Trend Score + Turn Score=12+20
The Score moved towards neutral and is expected to be neutral no later than end of Friday and probably Friday morning unless SPX rallies most of the day. It's interesting to me that the Score got more bearish on the initial drop Wednesday afternoon and stayed fairly bearish despite the largest down day of the year today. I remember the same thing happening in the opposite direction multiple times during the never-ending rally. The System seems very good at picking up those situations where the conditions are conducive to extending the trend. Although trends can extend further than one expects, the ideal bear window for a down move will be closed by Monday morning. Of course, the technicals are now in such a condition that any 2-4 day rally that can't break and sustain key levels will be subject to a large drop. You could certainly count 5 waves down for SPX 1654-->1584, but there are other counts that could easily extend to the 1570s or lower. I think 1575-1580 would be ideal wth a bounce back to 1600-1620.
Inspired by a member comment, I decided to compile System stats for longs versus shorts. The long positions have been more successful in terms of win%, total pts and avg pts. System short trades have 10 wins, 11 losses, 73 total pts and 3.5pts of profit on average per trade. System long trades have 22 wins, 13 losses, 253 total pts and 7.2pts of profit on average per trade. However, I think that is to be expected given the amount of time SPX has spent rallying since August 2012. And, the short stats may be a little better once this downtrend is over. The System is designed to catch trends and trade both directions, so it will naturally do better in the direction of the trend. For those that have followed me for years, they know early versions of my system used daily candles and rules. I dropped those because they didn't work as well. Having said that and without giving too much away, the current System does use daily indicators, in addition to hourly indicators, for both its Trend Score and Turn Score but more so the Trend Score. The trade trigger is based on 4hr support-resistance which is detailed in the System Review above. I am open to considering new ideas if they work in backtesting and improve profits without additional risk.
Although mixed success with max option pain at OPEX led me to stop using it much, it does intrigue me that more often than pure luck would have it SPX seems to zero in on max pain. June 21 max pain is supposedly 1500ish while June 28 max pain is supposedly 1550ish (although the curve is fairly flat at 1490-1520 and 1530-1570 respectively) and can move 10-20pts in the preceding days. It seems extremely unlikely 1500-1520 will be reached tomorrow, but the June 28 level of 1550+/- seems plausible especially given all the other evidence pointing to 1530-1550 by the 1st week of July.
The last 2 times ISEE dropped near 50, SPX fell 10 and 5pts on the subsequent morning before staging a sizable rally. The first one rallied 5-6pts before falling 15-16pts. The point is that ISEE this low suggests an imminent bounce. Likewise, the large BOW day today also suggests SPX is not likely to fall much further and has a good chance to rally or consolidate for 2-4 days. A VIX spike often leads to the same behavior although the December VIX high is a little ways further up and TRIN dropped, so there is room for Friday downside but probably not lasting more than a few hours or into Monday morning worst case. Good fortune.
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