Tuesday, 29 June 2010

22:51 BST - SPX Update

A nice decisive move today which eliminated the immediately bullish counts from Options 2 and 5 from yesterday.

Here are the 5 counts. With today's decline eliminating the previous bullish counts, all of the counts shown apply to all of the Options, although what they imply for each Option may vary (for example, a complete 5 waves down on one Option may mean the first wave of an impulse is complete, whereas on another it may mean the end of a wave A in a corrective move).

Option 1 - wave (ii) topped at 1131.23

SPX 6 min chart:

I've got two possibilities on this chart, depending on where wave [4] ended. 

First, if wave [4] was a triangle ending at 1082.60, its possible that today's low marked the end of wave [5] and i of (iii). We would therefore have to expect a bounce in wave ii which could retrace back up to anywhere between 1071 (38.2%) and 1094 (68.2%). It could go higher, but that wouldn't be expected if we are in wave (iii) of [iii] down.

Second, if wave [4] ended at the 1085.95 high, today's low may have been the end of wave (3) of [5] of i. That would mean a brief rally in wave (4) and then a new low in wave (5) to complete wave [5] and i.  Wave (4)  can't end above 1071.81, the wave (1) low on this alternative count. If it did, this alternate would have to be abandoned and the main count would apply.

Option 2 - wave [ii] completed at 1131.23:

SPX 5 min chart:

The potentially near term bullish count that had us still in wave (c) of [ii] up has been eliminated today. This means on this count we are in wave [iii] down.

The count I'm showing on this chart puts us in an extending wave v of (i) of [iii]. Today's low may have marked the end of wave (3) of [3] of v. A wave (4) rally would now be expected but cannot end above 1071.81, the low of wave (1). If it does, then the count will have to be reviewed.

Option 3 - wave [iv] of a leading diagonal completed at 1131.23:

SPX 5 min chart:

I've retained the nested ones and twos on this chart. The main count here is that wave 2 completed at 1082.60 with a truncated  C wave within y. That would likely make today's low wave 3 of (3). If so, we should see a wave 4 rally before new lows are made, but it can't end above 1074.63, the wave 1 low. The wave 4 rally ought to be limited to about the 38.2% area, at about 1053.

 If we we exceed the 1074.63 low, then it may be that the alternative shown on this chart is in play, with today's low being wave (3) of [3]. That would mean a rally in wave (4) should be next. Wave (4) can't end above the wave (1) low at 1085.31, so if the rally gets there, the alternative count is also wrong.

Option 4 - wave [b] of minor Y within a wave [X] completed at 1131.23:

SPX 15 min chart:

I've kept the count from yesterday showing a completed wave [1] at 1074.63, but obviously, wave [2] wasn't playing out as an expanded flat! I'm showing it as a double three and have changed the degrees of the labels.  I have us completing a wave (i) of [c] down. at today's low. This means we should expect a rally in wave (ii) which could take us back up to anywhere between 1071 (38.2%) and 1110 (78.6%). The main resistance area seems to be between 1071 and 1082.

There is a greater upside risk on this count if today's low actually represents the whole of wave [c] of Y and therefore, completes the intermediate wave [X]. 

At today's low, wave [c] would only be a 70.7% extension of wave [a].  Since this appears to be a wave [c] in a second zig zag, it would look better as a zig zag if [c] ended substantially below wave [a], as the count I have suggests it will - currently, it counts as a zig zag but looks like a flat. Its not impossible for [c] to have ended today, so we need to be alert to it since it could result in a substantial rally as we start minor A up.

Option 5 - we completed minor wave X at 1131.23. We are now in minor wave Y down:

SPX - 8 min chart:

The bullish count from yesterday was invalidated with the sell-off today.

As mentioned previously, taking out the low at 1042.17 may just mean we ended  a minor X wave at 1131.23 and that the drop from 1219.80 is forming a double zig zag rather than the single zig zag previously shown.  That's how I am labelling it now.  It would mean more downside near term, but longer term, would be bullish.

I've shown a completed wave [a] of minor Y at today's low. This means we should now rally in wave [b] - the 38.2% to 50% (1072-1083) area might be a good target and its the main area of  resistance. Taking out today's low before a substantial rally would suggest that wave (v) of [a] is extending further and/or that the whole decline may be extending (as suggested by the count shown on the chart of Option 3).