Thursday, June 14, 2012

SPX Update: All Roads Lead to New Lows

The short-term picture in the S&P 500 is less clear than I would like it to be.  On Monday, the market tagged my 1336 reversal target (okay, I was 48 cents off) as discussed on Friday, and reversed immediately; so far, that's been the high for the move.  One would think I would be supremely confident at this stage, but let me explain why there's still some lingering doubt over the market's short-term intentions.

Before I go further, the big picture outlook continues to believe that the trend has changed at intermediate degree, and that the trend will continue in the downward direction for some time to come.  Initially, I'm looking for a retest of the October 2011 lows, and ultimately much lower -- we'll examine that in more detail when it gets closer.

Moving back to the short-term outlook:  The interpretation I'm using as my preferred count is a bit challenging, because I'm basing it primarily on the view that the decline from 1334 to 1266 was a three-wave move.  However, it's a bit unorthodox for the larger fractal of an a-b-c expanded flat (blue (a)(b)(c) in chart below), due to the length of the b-wave.  Generally, the b-wave of an expanded flat won't exceed 138.2% the length of wave-a, and this one does.  So, it's hard to be exceedingly confident in this view. 

Further complicating the matter is the fact that the rally from 1266 to 1335 is clearly impulsive (meaning it has unfolded as a five-wave move), which does fit as wave-c (my slightly preferred interpretation), but could also fit as wave-a of a new a-b-c fractal.

Accordingly, I've charted both potentials.  The first chart shows the a-b-c expanded flat (preferred count).

The second chart shows a close-up view of this same count, with some potential targets and trade triggers.

The third chart outlines the idea that this rally was the first leg of a new a-b-c for wave (ii).

Finally, a simple chart of support and resistance for the SPX.

In conclusion, both counts are looking for significant new lows over the intermediate term, and new lows for the week (perhaps after a small bounce) in the next couple sessions. The short-term should clarify a bit as it unfolds.

On a Lighter Note

And last but not least, a bit of exclusive breaking newsThe big news item of late is still the European Union agreeing to bailout Spanish banks (euphemistically referred to as “bank recapitalization”).

The mainstream news outlets have reported that Spain did not approach the International Monetary Fund to request the €100 billion loan -- however my sources have revealed otherwise.  As a matter of fact, I was able to obtain conclusive proof that Spain first asked the IMF for the 100 billion euros, and, fearing austerity measures, actually went to the EU as a last resort. 

Utilizing a source who wishes to remain anonymous, I obtained a copy of the actual letter sent to Spain from the IMF.  This exclusive evidence is reprinted below:

Dear Spain,

We have received your recent application for a       bank bailout       loan in the amount of    100 billion  ($126 billion USD)    .  After reviewing your application for nearly 20 minutes (to be fair: 18 minutes of this were spent passing your paperwork around the office, pointing at various line items, and laughing hysterically), we regret to inform you that at this time we have denied your loan request for the following reason(s):
                                Delinquent Credit History
                                High Debt-to-Income Ratio
                                Insufficient Collateral
                                The Majority of Our Employees Cannot Roll Their “R’s”
As a result of these issues, we are currently unable to approve you for the full loan amount; however, we would still like the opportunity to serve you.  In order to help you get back on your feet, we would like to offer you our new International Monetary Fund Airline Miles Credit Card with an initial credit limit of       $           250      at an Annual Percentage Rate of only   89.99   %, and with a low annual fee of only $    249.99   !  With the IMF Airline Miles Card, you’ll have the chance to properly manage and re-establish your credit while also accumulating valuable flight miles each and every time you use your card for common everyday expenses, such as groceries, dining, gas, and bank bailouts!  Your accumulated miles can then be redeemed for trips to exotic destinations like Greece, Italy, Portugal, or Ireland. 

Your card payment history will be reviewed each year, and as long as you continue paying your IMF bill on time each month, your account will receive annual credit limit increases equal to $       250      per year.  Assuming your account stays in good standing the entire time, your IMF Airline Miles Card will eventually provide you with all the credit you need ($      126 billion      ) in only 504,000,000 years!

Thank you for this opportunity to serve you.  We hope you’ll consider us again for your future bailout needs.


                                                                                                                      Phil Rizzuto
                                                                                                                      International Monetary Fund
                                                                                                                      “Why Not, It’s Only Money”

Reprinted by permission, Copyright 2012 Minyanville Media, Inc.

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