It was a beautiful weekend here on the central California coast.  Seems like everyone was out surfing, golfing, taking walks on the beach — at least that’s what I heard.  I spent the weekend poring over ECRI’s Weekly Leading Indicators for the past 30 years.

Okay, in the interest of fair disclosure, Friday night was the annual Father-Daughter dance at my 10-year-old’s elementary, and I needed a couple quiet days off my feet.  If you’ve ever been in a room full of screaming prepubescent girls for two hours of JB and 1D, you know what I mean.

Bottom line, the WLI research bolstered my confidence that our current position is the right one — whether or not the US economy is still in a recession, about to double dip, or is on the mend.  The key takeaway is this chart, showing the QE-fueled market continuing to pull away from the underlying economy (as measured by the WLI.)  Check out the article HERE.

This morning, I’m hearing more and more talk about the market being frothy.  This is somewhat reassuring, as shorting at tops based on Harmonics often leaves one feeling very lonely.  I mentioned that SPX 1518 was at least an interim top to several other dads at the dance (guys who are in the biz) and they looked at me like I’d had too much fruit punch.

I could have talked for hours about how applying derivations of a golden ratio based on 2,400-year-old mathematics enables effective market timing, but for some reason they had a sudden urge to go find their daughters and dance.  Funny how that always happens, and just when I’m getting to the good part…

Of course, frothiness is what leads to overbought conditions — which, of course, is what you want when you short the S&P 500.  So far, the market is behaving itself — selling off a little while trying to sort out economic data, quantitative easing, currency wars and the upcoming sequester battle.

continued for members…

As we discussed the other day, there is still the possibility of a slightly higher high before the downturn.  We came close to the 1518.57 top, but didn’t quite reach it.  I’d be inclined to take an intra-day long position on any push higher — leaving the core short in place.

If, for whatever reason, we get a push through these levels, the next meaningful Fib level is way up at 1553-1555.

UPDATE: 3:45 PM

SPX is taking another run at Friday’s highs and the 1.618 at 1518.57.  No need for alarm yet, as this appears to be a shake-out attempt.

If it closes above 1518, SPX will complete a tiny IH&S pattern visible on the 15-min chart.  It would theoretically be good for about 1522.4.

The dollar broke out of the channel and successfully backtested its Jan 18 high this morning.

RSI appears to be grounded in the white channel higher, but I’ll keep an eye on the falling  purple channel, too.