Current SPX Position: Long at 1622
Next Action: Stop and go short at 4hr support (currently 1646.69)
System Score: 4=Bearish=Trend Score + Turn Score=8-4
Proposed New Score: 50%=Neutral=Trend Score + Turn Score=40+10
The Score has now turned outright bearish, and it's likely to stay bearish for the next 3 days unless SPX drops 2-3%. SPX has rebounded a Fib 62% of 1687-->1598 which was an approximate Fib 89pt drop followed by an approximate Fib 55pt rally. Most shorts have covered (I used to have a theory about sharp moves often being retraced starting 3-5 days later due to margin calls).There are many hourly negative divergences. Most people expect the Fed to rescue this "terrible" market situation (SPX is down <3% and people can't seem to stand it). All the evidence I pointed to 2 weekends ago is pointing to high odds for a larger decline including Shanghai Midnight and the Hindenberg Omen. EW has satisifed a potential A down, B up with C down to go. The drop took 10 days and the smaller rise has taken 9 days. VIX is finding support around the levels seen at its tops in the previous 4 SPX downtrends. The SPX technicals have the most bearish setup they've had in months as represented by the Score. The weekly MACD is within pennies of a bearish crossover and the weekly RSI14 has small negd with last week's rally and slight negd with the 2011 high. Daily RSI5/14 has negd with the initial 2013 surge. Most world markets are in downtrends. The T-Theory Confidence Indicator (from the late Terry Laundry) is displaying a slightly lower high. All the key moving averages at 50dSMA or below have converged on 1620-1640 perhaps ready to cross over. I could probably go on, but it would be pointless.
The bottom line is that the current SPX situation is a near-perfect setup for a rapid bearish drop, but the market is hanging on to the Fed lifeline. If the FOMC announcement is bullish by downplaying the likelihood of tapering anytime soon, perhaps the bearish setup can be thwarted. I can also envision a scenario where the market still swoons after 1 more headfake on bullish Fed leaning, but I suspect it would probably be a tamer drop than the one I've projected to 1530-1550. In any case, we should know the answer by late Wednesday or Thursday. For now, the System is tentatively long having been on quite a winning streak and ready to go short on a break of 4hr support. Good fortune.
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