Identifying the SPX Bottom

(Update Friday February 12th 2016 4:40PM EST)
Strong rally. As happened at SPX 1920 coming down from 1947, the System technically got bullish at today's opening gap of 1845ish after it gapped past the previous day's 1839 high and closed above the 1852 level. However, I was unavailable this morning to post and it is a mixed bag of data with the weekly trend down, SPX back-testing key s/r at 1850-1900, hourly indicators at -50%, daily MACD forming a back-test and China re-opening Monday while US markets are closed. Only about 3 of the 11 bottoming indicators I proposed were fulfilled, so I still don't think 1810 is a strong bottom. But, sentiment being overly pessimistic in the general sense is making the downtrend choppier without normal capitulation indications. Max option pain for Feb 19 is at SPX 1945 and falling so 1920+ could be a target next week, and time has run out for both a trip near 1750 and a rally back to max pain by Feb 19. But, an EDT-like move down near 1750 next week is still possible in fitting with the choppy downtrend, so I don't have a strong expectation heading into Tuesday but I do have more and more conviction for bigger declines into May and October +/-. Have a great weekend! And good fortune to your family!


(Update Thursday February 11th 2016 4:10PM EST)
Indecisive close. SPX 1812 was pierced with many positive divergences, so bulls have an argument. However, not many indicators for a bottom have been triggered and the bulk of the evidence favors lower. SPX 1839 intraday was a 40% retracement of SPX 1947. It looks like an ABC rally could be complete or perhaps one more leg in a mini EDT needs to be completed at 1839-1845 tomorrow. From 1840ish, a leg lower equal to 1882-->1810 would be 1840-72=1768. That fits the cluster of targets I have at 1750-1780, but the back-and-fill stair-stepping lower without panic certainly allows for a flush to take us down to 1730-1760. Could still happen Fri/Mon but let's see if tomorrow's market drops hard or consolidates. Nothing confirms the down-trend is over yet. The System remains bearish from SPX 1920. Good fortune.
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Nobody has a crystal ball or perfect system for identifying tops and bottoms, but there are common and typical characteristics we can look for. Now that SPX is testing the previous 1812 low today and I am looking for a bottom today +/- or next Friday February 19th +/-, let's review the status of the bottom indicators I laid out recently.


1. A TRIN and VIX spike. TRIN > 3 at least once and preferably TRIN > 2 at least twice. VIX > 28 s/r and preferably 30-40.
Status: Unfulfilled. TRIN has stayed low and VIX has not really even broken 28 s/r yet.
2. SPX at 1750-1800 preferably at 1740-1775.
Status: Unfulfilled. SPX hasn't even broken 1812 yet.
 3. Timing of Wed/Thu this week or Friday February 19th OPEX +/- 1 day. I say that because Yellen speaks Wed/Thu, bottoms don't usually form on Fridays, OPEX max pain usually serves as a magnet (SPX 1870-1900?) in which case SPX needs a week to bounce or occasionally an anti-magnet in which case the low should be near OPEX.
Status: Fulfilled. We are in the ideal time window for a bottom.
 4. Bullish daily candle swing. This could come 1-2 days and multiple percent off the bottom but would still confirm it.
Status: Unfulfilled. No bullish swing. System bearish since SPX 1920.
 5. Preferably positive divergences appearing in many daily/weekly indicators such as MACD, RSI5/14, VIX etc.
Status: Partially fulfilled. Small positive daily divergences exist for RSI, MACD and Stoch, not VIX. Weekly positive divergences do not exist in MACD or RSI14 and TBD in RSI5.
6. Most other markets falling to key targets/supports which in my estimation are (as posted previously)...
a. Nasdaq = 4000 Status: ~4200 Unfulfilled
b. Russell 2000 = 900 Status: ~950 Unfulfilled
c. Dow = 15341-15370 or lower (annual reversal level for last 2 years) Status: low 15519 Unfulfilled
d. WTIC oil = $22-26  Status: low $26.22 Unfulfilled but very close
e. NYSE = 8800-8900 Status: ~9000 Unfulfilled
f. Wilshire 5000 = 18400-18500 Status: ~18500 fulfilled minimum


Overall, out of the 11 bottom indicators listed, 2.5 have been fulfilled. I'd like to see 6-7 fulfilled at a minimum before expecting a bottom within a couple hours or days. That could still happen by tomorrow, but a lot will depend on what happens to close today and open tomorrow. I did look back at every Friday in the past year. It is true that since the bull market price high ended in May, Fridays have only ended downtrends with reversals twice and both were retested in 2-3 days and 2-3 weeks. So, recent bear market behavioral odds suggest that if today does not form a reversal or tomorrow a gap and go higher, tomorrow is highly unlikely to form a reversal and, even if it does, SPX is likely to retest the low in the subsequent days. That does not preclude Friday from forming the price bottom with a large Monday rally, but it does mean if Friday turns down it is likely to end up a lot closer to the day's lows rather than the highs.


If today is the heart of wave 3 down from SPX 1947, it is likelier that SPX will test or break the lower end of my SPX 1750-1800 target and carry into Friday OPEX. However, based on my LDT theory, ABCs down from SPX 2135/2116/2104 and now SPX 1947 would allow for a more overlapping downtrend to the 1770s bulls-eye area ending as soon as today or tomorrow. (Edit: Upon review of my previous CY2015-2016 H&S Chart, an LDT that is ultimately heading to SPX 1600-1650 would work a lot better if SPX falls to 1730-1760. A 1770+ bottom would likely raise targets above 1600-1650 but I have a large Fib/trend cluster around 1600 so my LDT pattern is probably unlikely if SPX does not fall to ~1730-1760.) Hopefully, the bottom indicators above and the System will help identify that within reasonable time and price. Good fortune.