Based on my consumer discretionary spending indicator, I made a projection in late 2014 and early 2015 for a significant SPX top in the mid-March to mid-April timeframe and a significant SPX bottom in the mid-April to mid-May timeframe +/-. Historically, most such spending tops and bottoms led to 8%+ trends but a few instances only produced 4-5% moves in the last couple years. Now that May is gone and the wiggle room for the trend timing is expired, I must conclude the projection was a failure and a review is needed.
Although I can't say this for all my failed price projections, this particular projection still worked out pretty well in trading terms which is what we're all here for, because SPX followed my projected EDT pattern from October 2014 in which I expected a lot of reversals and even called for a high at 2115-2135 before shorting. There have been no less than 5 opportunities to short that price range and profit 1-3% and SPX sits below that level today albeit without breaking down as I anticipated. There are no more active spending signals.
Looking back at the charts, it actually appears we had a significant bottom in March with a choppy 4% rally to a potential top in May. Obviously, that is the exact opposite of my projection albeit a fairly sideways move overall. I made a comment months ago when I first made the projection that there had only been a few back-to-back spending signals like we got back in Oct/Nov 2014 and that one of those led to a fairly sideways period rather than a large top/bottom and that one of them even appeared to invert meaning the top and bottom swapped places. I have not mentioned that in months, because I thought many factors favored a May bottom and I didn't want to keep hedging my projections too much. Perhaps I should have, but the bottom line is that possibly a bottom/top inversion occurred again for the back-to-back spending signals. With a small sample size for such events, I cannot be sure and a significant May top is not even a certainty yet.
So...I need to see how June goes before I can fully critique the spending-based projection, but there is still a significant risk based on various deteriorating/diverging technical indicators, the EDT pattern (some people are still calling for 1 more leg up to 2150+) and a possible inverted spending signal that a significant top is at hand with an 8%+ move in the works. That would equate to 160+ points and a move below 2000. There are support zones at 2070ish, 2040ish and 1960-2000 of which the latter level would fit a more typical spending-induced downtrend.
Short-term, I can see the Dow retesting its recent low at 11700-11800 which would likely equate to SPX retesting its 2068 low perhaps stopping in the 2070s. After that, a failed underside test of the 20/50SMAs near 2100 would be logical. Key short-term events are the June 5th employment report, the Fed meeting June 16/17 and OPEX on June 19th. Max option pain is near 2100 currently and could fall if SPX drops short-term. I tend to think the market will find a way to leave us guessing until June 17-19 which means any short-term rally would probably finish an EDT at 2135-2155 and then collapse and any short-term drop would probably retest key support areas near 2070 or 2040 before rallying on Greece rumors, employment news or Fed chatter. Of course, I favor the latter scenario (generally sideways into the 3rd week of June with a downside bias before collapsing) but we should know the first half of this week.
In any event, I still believe potential upside reward is much, much less than potential downside risk. And, the currently developing top or potentially one in the coming months (whether a new all-time high or failed retest) has a high likelihood of retracing 80%+ of the rally above the old SPX 1576 all-time high from 2007 as all new all-time highs 10%+ above old highs have done since year 1900 in the Dow. Currently, that would be a 450pt drop (length of downtrend unknown) below 1700 which would line up with Dow retracing 50% of its uptrend from March 2009. Beware and good fortune.
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