System Long Trade Exited and SPX has entered resistance

*** Personal Commentary  for 2016-01-22 10:45AM EST ***
Looking back at the last 16 months, SPX gap ups in scenarios similar to today have typically run 15-25pts higher same day. Some continue higher for a few days while most make a sizable pullback and a few reverse trend. SPX 1997+(15-25pts) is approximately the SPX 1910-1920 area where I see multiple resistances. SPX 1901 is also minor resistance. As I wrote this, SPX got pretty close to 1910 although it looks like an ABCXABC needs a little more work to the upside.


I see a fork in the road and SPX may not choose a direction until Mon/Tues/Wed next week. Not withstanding a likely sizable pullback from SPX 1910-1920, Path 1 is a rally to the SPX 1990s+ and then a pullback into mid-February with +/-2% fluctuation centered around the 1950s. Path 2 is a drop below SPX 1812 likely reaching 1750ish around Monday February 1st +/- and then a rally back near SPX 1900 into mid-February.


Why? You know I am a big believer in max SPY OPEX pain. It is currently near SPX 1950 for Friday February 19th and will likely stay there if SPX fluctuates between 1900 and 2000 into mid-February. It would likely fall near/below SPX 1900 if a drop to 1750 occurs. I also believe in cycles. The current short and intermediate-term cycles could have completed at SPX 1812 in the expected time window and support a rally to SPX 1990s. However, there is still room in the time window for more lows into Feb 1 +/- and the positive divergences at SPX 1812 were small. In line with those 2 paths, CY2015-2016 has generally been following the gyrations of CY2007-2008 thus far and that supports Path 1...a rally into Feb 1 +/- with consolidation into mid-February. On the other hand, Oct 2015-Jan 2016 has followed a similar script to Oct 2014-Jan 2015 with a huge rally into November, mid-December weakness, mid-January weakness and weakness into Feb 1st next. McClellan's prognostication using Eurodollar COT and lumber suggest a significant bottom in January and again in April +/-, but it's not meant to predict down to the day or week. All that makes Path 1 or Path 2 seem like a 50/50 proposition.




Here are some things that favor Path 2 in my eyes. I strongly believe in my research that suggests SPX is heading to the 1100s by October and 1750 and 1600 in between and, although a quick 20% drop like CY1987 and CY2008 is not unprecedented, even such a swift drop may not be enough to reach my targets if we don't see deeper weakness to 1750 now and 1600 by April/May. Although I saw oil reach $26 on CNBC, my measured $26 target was derived from the $WTIC chart and it only dropped to $27.56, so there is still a little room to drop lower short-term and that may be the trigger for SPX Path 2. And, don't forget what I mentioned yesterday about corporate buybacks still being blocked for the majority of companies until Feb 1 +/- meaning we don't have the Fed or buybacks as strong market support for another week or two. Also, we did not see the VIX and TRIN spikes typically seen near major bottoms. And, we have an FOMC meeting next Tues/Wed. All this combined leads me to favor Path 2. In terms of the System, I hope today's gains are largely held with a small consolidation/up day on Monday and then a bearish daily trend reversal on Tues/Wed at SPX 1890-1900+, and if we don't get a bearish move by Tues/Wed, the odds for bullish Path 1 should outweigh. Good fortune.


Note: I often make minor edits to my posts after they are published and I re-read them, but I mark it if I think it is a change in opinion, fact or number and not just a formatting or grammatical change. Today I did make a bunch of formatting/rewording changes and I added the VIX/TRIN and FOMC lines but nothing that materially changes my points.
*** S2 System Summary ***
Trading Position: Long 50% at SPX 1969, 0% at SPX 1997, 100% on neutral hourly score
Hourly Score: -40%
Daily Score: -80% (I added a Daily Score and will be incorporating that in the rules)
Daily Trend: Up
Weekly Trend: Down
System Rules (coming soon)

*** S2 System Commentary ***
The System exited its 50% position after the large opening gap up for a 14pt profit (28pts*50%). Even if it turns out to be a gap 'n go, my study shows the next pullback/consolidation will typically offer an opportunity near the gap open. And, pop 'n drop occurs more often statistically at least for a (near) gap fill. The hourly and daily scores are likely to get more bearish than shown above if SPX rallies above the previous SPX 1901 pivot into resistance that I see at 1910-1920. The System will re-enter long when the hourly score gets back to neutral to slightly bullish OR when SPX approaches within 0.2% of the 1969 gap (1973) if the daily trend is still up. Overall, the hourly and daily scores are very negative and large gaps are dangerous, but the daily trend must be respected. So that leads to the situation we're in now where the System went long briefly but exited until scores cool off for a better setup.

*** Other Research ***
Support for SPX 1600-1750 intermediate-term and SPX 500-1100 later in CY2016...

1. Big Picture Summary Including Cycles from USA Inception
2. S2EW Analysis - 1932&1974 ended wave 2s (year 2000 ended heart of wave 3)
3. S2EW analysis back to 1831!!!  (key RSI lows every ~40 years, 1857, 1896, 1932, 1974, 2016?)
4. Magical 48% (Bear Depth Analysis....45-48% corrections common back to year 1900)
5. SPX and the 3 Bears - Parable or Parabola? (the rate of bull market inclines and bear market declines have been growing exponentially...target SPX 1100s minimum CY2016)
6. Bull Market Fib Pattern...Next, bear getting ready to roar like 1923? (bear market underway if SPX breaks below 1822-1851)
7. Annual Dow Reversals Back to Year 1896 (annual reversals have been extremely bearish about 80% of the time and fakes 10% of the time. The level to watch is Dow 15370 by the end of 2016)
8. 10 Reasons to Retest SPX 667 in 2016 (other well-respected market prognosticators have objective technical systems that have already triggered MASSIVE bear market calls as of August 2015 including Tim Woods, Peter Eliades, Terry Laundry and Robert Rhea)
9. Custom Discretionary Spending Indicator Projects Bottom April +/- (Projected Oct/Nov CY2015 top and Apr/May CY2016 bottom)
10. Bear Market Initial Retracement Study Back to 1900 Favors SPX 1700ish next

*** Chart Projections ***

*** S2 System Trading History ***
I will start officially appending recent System trade history once the rules are published