After doing a little more technical analysis and collecting my thoughts, I am not leaning one way or the other on the next move. I maintain that the rubber meets the road next week as to whether SPX tests sub-1900 or 2000+. Why?
1. The VIX technical condition I found leading to re-spikes rarely occurs after more than a 4-day reprieve. SPX has rallied for nearly 5 days. Even if I allow some leeway due to OPEX, VIX needs to climb starting Monday even if it has some back and fill.
2. My S2 System would actually be short now around 1952/1953 and the technical conditions are bearish. I mentioned this bearish condition would likely occur if SPX tested 1960ish, and I also said SPX would likely need to consolidate for a couple days below 1960ish for technicals to setup neutral-to-bullish. That is still the case.
3. In terms of EW, the waves are setup for a wave 3 type rally until 1928 is broken on the downside although getting much below 1940 may be enough. The waves are also setup for a larger C wave drop after an ABC rally from 1904 to 1964. So, 1964 and 1928 are the EW lines in the sand.
4. My discretionary spending indicator projected a significant bottom around the 2nd week of August. Until this year, only about 1 in 10 previous bottom projections led to <8% drops, but this year has seen the last 2 drops only measure 4.4%. In EW terms, that could be due to wave 4s. In cycle terms, that could be due to the last manic phase. Perhaps the spending signal could stretch to this coming week but another week and especially two is an historical stretch.
5. All the major averages retraced Fib 38% to 100% of their respective tops. They must now decide their next direction. I don't think there is any more room for rally to maintain hopes for a short-term break of SPX 1904.
6. Fed minutes will be released Wednesday and Yellen makes an important speech Friday. These could easily be sparks.
Thus, I will use 1964/1928 as my bull/bear line. Although a Monday gap up is possible if the Ukraine news fades away, I think technically even the bulls could use a little more consolidation. A move lower to retest the Friday 1942 low or at least retrace it in a further nested wave 2 is reasonable. If that occurs, I'd probably move my bull line down to 1956 and move the bear line up to that low after a 10+pt bounce. Rubber meets road this coming week. Good fortune.
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