Sunday, 2/17/13 update

Sideways drift this last week in the ES/SPX so not a lot of new information to add to the scenario presented in last weekend's post.  Prices were restricted to a very narrow 14 point range so not a lot of push from either direction.  As they say, bottoms are made and tops are formed, and the ES/SPX certainly looks like it is forming a top. If correct, the wave count on the ES has the pattern from the Feb 7 low interpreted as a 5th wave ending diagonal that terminated at Friday's high, and that 5th wave is the last move in the steady up of a 3rd wave that kicked off right after Christmas.  If so, we can expect a 4th wave correction over the coming days.  A correction at this point is dictated as the steady up over the last 7+ weeks hasn't seen any real break.  A likely target area for a correction at this juncture is in the ES 1490 area which has been an area of support for several 4th waves of lower degree. 

What's really interesting is what's been happening in the underlying technicals over the last couple of weeks.  This author has a daily indicator developed back in the '80's before the advantage of today's electronic trading and charting platforms.  It's a mish-mash of daily NYSE adv/dec, volume and other statistics (and not exactly a jealously guarded secret, if anyone's interested contact me @ sunset@mwt.net and I'll forward the formula).  It doesn't identify tops very well, but it's excellent at nailing bottoms.  A weak buy signal occurs from a spike up from a low below a reading of 1.00, and a strong signal is generated at a low below .50.  As an example the most recent buy was generated in mid-November with a spike up off a low of .75 - and that turned out to be pretty darn good.
Anyway the indicator has been diving down towards buy territory in recent days with a reading of about 1.25 on Friday's close.  A couple of strong down days will get it below 1.00 and possibly below .50.   I know this is hard for the bears to accept, but we might possibly see a decent buying opportunity develop in the coming week.  One final note: this is not a day trading tool, it's based on daily statistics - but it does have value in a position trading approach or as a means of identifying a trend change.  Also, a spike can only be identified after it is established, so it won't give you a "real time" signal unless you trade the ES after regular market hours.