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Saturday, 31 July 2010

15:21 BST - Dollar Page Updated

See the dollar page in the menu above or click here.

10:41 BST 60 Min Counts Page Updated

I've updated the 60 min counts page for SPX. Please use the menu button above or click here.

Friday, 30 July 2010

21:27 BST - SPX Update


The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each on the 60 min counts page.


Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. On the count on the chart of Option 3 that rally is correcting the whole decline from 1219.80, not just the decline from 1131.23. 


On the charts of Options 1, 2, 4 and 5 I have labelled a complete double zig zag count from the 1 July low ay 1010.91.


If it did complete at 1120.95,  then for Options 1 and 2 we have started a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we have started wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we have started wave (iii) of [c] of minor Y down - again, temporarily bearish. 

On the chart of Option 3 I've labelled a single zig zag which  would be minute [c] of  minor 2 up. This has had to be re-labelled with today's action and currently has us either in wave [b] of minor 2 or just starting wave [c] up. However, note, the double zig zag count could also be applied here since that has retraced a sufficient amount of the decline from 1219.80 to be a minor 2 correction of that drop.  If that completed at 1120.95 and we apply it to the chart of Option 3, it means that we have started minor 3 down now.

Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:






Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.


As mentioned above, if we had a double zig zag up from the July low, it counts as complete at 1120.95.

So, I'm counting the decline from 1120.95 as the start of  wave iii of (iii) of [iii] of minor 1.


This 1 min chart shows two possibilities. Either we have completed wave [1] down or we are in a (1)-(2)-1-2.


SPX 1 min - wave [1] down from 1120.95 or (1)-(2)-1-2:





If today's decline was wave (5) to complete wave [1] down, the rally from today's low would be a wave [2] retracement. This would have to stay below 1120.95 for the count to remain valid. A 61.8% retracement would be in the 1108 area, while a 78.6% retracment would take us up to the congestion around the 1113 level. So far, we've retraced just over 50%  and it could be counted as complete as a (W)-(X)-(Y) at today's high.

If the decline is a (1)-(2)-1-2 down, the invalidation point for this is the wave (2) high at 1115.90. If that is taken out, then the likelihood is that we did complete wave [1] at today's low and that remains valid unless we take out 1120.95. 
On the downside, the main level to watch is initially today's low at 1088.01. Obviously, that has to be taken out once we complete wave [2] (or 2) if we are in a larger 3rd wave down.  After that, with the revised count for the single zig zag (see the charts under option 3), the next level to watch is way down at 1010.91. In the meantime, we could have more confidence in this count being correct even before 1010.91 is taken out, if we were to see large impulsive declines that are not retraced immediately and significantly.  Until then, the risk of  new highs remains.


Option 2 - Wave [ii] topped at 1131.23

10 min chart:





For this Option, five waves down from 1131.23 represents wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would now be in wave (iii) of [iii] down.


This is the same labelling as on the chart of Option 1 for the rally from 1 July and the move down from the 1120.95 high (although the wave degrees are different), so please refer to the comments and 1 min chart posted under that Option.



Option 3 - Ending diagonal complete at 1010.91

10 min chart:




For this Option, 5 waves down from 1131.23 to 1010.91 would be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up.  

Yesterday it looked like we were in wave (iv) of [c], but today, the decline from what was labelled wave (iii) at 1120.95, took out the wave (i) high at 1088.96, so the decline from 1120.95 could no longer count as wave (iv).

However, the possibility that we are still in a single zig zag from the July low remains by reverting to the count I had been following until 22 July. It makes the 1120.95 high wave [a] of minor 2. Today's decline would be all or part of wave [b]. Wave [b] would certainly look better on the larger time frames if it pulls back rather more than it has so far. 

Here's the chart from the July low:

SPX 1 min - minor 2 from the July low:






I've shown wave [b] complete at today's low, but note the alternate count which would entail further downside in wave [b] before we move up in wave [c].

Here's a close up of the action from the 1120.95 high (wave [a]) which shows wave [b] as complete:

SPX 1 min - wave [b] of minor 2:



This count will remain a possibility until we take out the July low at 1010.91.

Timewise, this count looks OK if the larger count shown on the chart of Option 3 (see the 60 min counts page for perspective) is correct, with minor wave 1 completing at the 1 July low. To the 1120.95 high, wave 2 would only have lasted .382 x the time it took for wave 1. If the count in the above charts is  the correct one, it will allow wave 2 to use up more time, without being out of proportion in terms of time, to wave 1.  The count probably would not look as proportionate timewise on any of the other Options.

As mentioned above, its possible to apply the double zig zag count to this Option given how far that has retraced. If we do that and that double zig zag did complete at the 1120.95 high, then minor 2 should be over and we should now have started minor 3 down.


Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:





For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c]. With that complete, we would now be in wave (iii) of [c] down.


However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, the possible counts for the move up from there are shown on the 60 min chart of the bullish alternate count for Option 4 on the 60 min counts page which shows a [i]-[ii]-(i)-(ii)-i up from the July low. Alternatively, it may just be a [i]-[i]-(i)-(ii) as shown on this chart:


SPX 1 min - Impulse from July low:





For the moment, I've assumed we completed a double zig zag for wave (ii) of [c] at 1120.95. Please refer to the comments and 1 min chart posted under Option 1 above.


If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.



Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:





On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.


This is the same double zig zag shown for Options 1, 2 and 4, so please see the comments and 1  min chart posted under Option 1 above.

Have a great weekend!





17:43 BST - SPX Update: Bearish Count

Here's an update to the chart of the bearish count which had us completing a double zig zag at 1120.95:


SPX 1 min - nested ones and twos or [1] down complete:



Above 1107.60 invalidates the i-ii. Above 1121.95 invalidates the whole count and I'll probably look to the near term bullish count of the continuing zig zag posted earlier. 

17:23 BST - SPX Update: Wave [c] of a zig zag

Here's an update of the chart I posted earlier for a potential continuing single zig zag from the 1 July low. I've adjusted the labels for the [b] wave from the earlier chart, to show it as potentially complete at today's low, but its possible its not and that the earlier labelling may be on the right lines. The labelling in this chart is invalidated below today's low, in which case, the earlier labelling may come into play:

SPX 1 min - wave [b] of minor 2 from 1120.05 high:


That wave ii label at 1098.10 may be wrong since the decline to that low looks like 5 waves, so wave ii may have more downside to go. It has to stay above the wave (ii) low at 1095.99 to remain valid, however.

If we take out that 1095.99 low then I'll probably look to the earlier labelling for this near term bullish count.

15:33 BST - SPX Update

Following on from the potentially bullish count (at least near term) posted in relation to the chart of Option 3 earlier on, here's the bearish case, although the alternate count likely involves more upside in wave [2] (I have to say that it doesn't look very nice as a wave [1] down when viewed on longer time frames):

SPX 1 min chart - nested ones and twos down or wave [1] down complete:



The nested ones and twos is invalid above 1107.60, while the complete wave [1] down is invalid above 1120.95. If that is taken out, we're likely in the continuing single zig zag shown earlier.

14:54 BST - SPX Update

With 1088.96 being taken out today, the main count shown on the chart of Option 3 (see last night's update) which had us in a single zig zag up from 1 July requiring a wave (iv) of [c] pullback to stay above 1088.96, is now invalid. However, beware of this alternative, that the 1120.95 high was only wave [a] of minor 2:

SPX 10 min chart Option 3:



The drop from 1120.95 would be wave [b]. This is the count I was originally looking at for this single zig zag count, and its still a possibility Something to be aware of until we take out the 1010.91 low.

11:07 BST - SPX Update: Something for the Bears

You'll see from the updates I've been posting (the latest was in last night's update) that there is a case for counting a corrective double zig zag move from the 1 July low as complete as at the high of 1120.95.

This 60 min chart (sorry, there's alot going on on this chart) does look rather bearish in support of that:



Firstly, we've got the pitchfork (orange lines), which has halted the advance so far, firstly to end wave w of the double zig zag, and, for the moment at least, to end the presumed wave y. 

Second, we've had the bearish cross of the 13 and 20 moving averages. Yesterday afternoon's rally tested the falling 13ma and failed. However, both those averages and price are above the 50ma. For the bearish case to gain momentum, we need to see them all drop below that 50ma.

Third, the RSI (14) is showing strong bearish divergence against the price highs at w and at y and the late rally yesterday, strong as it seemed, failed to move the RSI above 50.

Fourth, The MACD histogram has diverged against price pretty much throughout this move up. The MACD itself also shows definite bearish divergence against the w and y price highs.

The ADX line, which indicates the strength of a trend (the direction of the trend being determined by whether the green +DI line is above or below the red -DI line), was definitely weaker on the move up from x to y than it was on the move up from (i) to w. I like to see the ADX above 25 to indicate a strong trend - it barely made it above that figure on the rally from x to y.

If this is a corrective move (and not the very bullish alternative I showed in the last chart in this post) the blue correction channel should contain price. If we fall significantly below the channel, assuming we've had a complete double zig zag (and not a single zig zag which is being followed by an X wave) that ought to signal the end of the correction. However, the manner in which it falls will be important - it has to do it impulsively.

Possible signs that there may be more left in the rally:

- The MACD is still above the zero line. If the rally is over, it needs to drop below;

- The Slow Stochs is moving up. If the rally is over, it may not get too far above the 50 line.

Overall, the signs on this chart are more bearish than bullish. It doesn't preclude a further high (causing more bearish divergences) if the single zig zag is the relevant count. You'll see from last night's update, that count still looks like it needs one more new high above 1120.95. But this chart perhaps suggests that any new high may not get too far above the 1120.95 level. 

Let's now see if price can fulfill the bearish expectation, or will the bears once again grab defeat from the jaws of victory!
 

Thursday, 29 July 2010

21:17 BST - SPX Update

The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each on the 60 min counts page.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. On the count on the chart of Option 3 that rally is correcting the whole decline from 1219.80, not just the decline from 1131.23. 

On the charts of Options 1, 2, 4 and 5 I have labelled a complete double zig zag count from the 1 July low ay 1010.91.

If it did complete at 1020.95,  then for Options 1 and 2 we have started a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we have started wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we have started wave (iii) of [c] of minor Y down - again, temporarily bearish. 


On the chart of Option 3 I've labelled a single zig zag which  would be minute [c] of  minor 2 up. It still does not yet look complete. However, note, the double zig zag count could also be applied here since that has retraced a sufficient amount of the decline from 1219.80 to be a minor 2 correction of that drop.  If that completed at 1020.95 and we apply it to the chart of Option 3, it means that we have started minor 3 down now.


Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:




Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

As mentioned above, if we had a double zig zag up from the July low, it counts as complete at 1020.95. The possibility that the decline from that high was wave 4 of (3) of [C] of the second zig zag was ruled out today when we dropped below 1096.38.
So, I'm counting the decline from 1020.95 as the start of a 3rd wave down - on this Option, its wave iii of (iii) of [iii] of minor 1.

This 5 min chart shows two possibilities. It shows today's decline as either wave 1 of (3) or wave (3) itself:

SPX 5 min - (1)-(2)-1-2 down from 1020.95:




If the decline is wave 1 of (3), the rally from today's low would be wave 2. The invalidation point for this is the wave (2) high at 1115.90. If that is taken out, the the likelihood is that we are in the single zig zag count (see Option 3 below). 

If today's decline was wave (3), then the wave (4) retracement must not end above the wave (1) low at 1109.78. If that is taken out, then we have to look to the main count labelled and wait to see if that gets invalidated by moving above 1115.90.

At the moment, I prefer the main count - wave 2 has retraced 61.8% of wave 1, which is exactly what you'd expect of a 2nd wave. I think it would also have a better look to it if we get an extended wave (3), but the market will have to decide.

And here's a close up of the move from the high at 1020.95:


SPX 1 min - close up of decline from 1020.95:





Looking to the downside, the main level to watch is initially today's low at 1092.82.  Taking that out will increase the odds that this is the correct count. After that, we want to watch 1088.96 since taking out that low will  reduce the likelihood that we are in the single zig zag count (see Option 3 below). After that, there is the low at  1065.25. If that is taken out, the chances are good that the corrective move is over. Until then, the risk of  new highs remains.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:



For this Option, five waves down from 1131.23 represents wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would now be in wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (although the wave degrees are different), so please refer to the comments and 1 and 5 min charts posted under that Option.


Option 3 - Ending diagonal complete at 1010.91

10 min chart:



For this Option, 5 waves down from 1131.23 to 1010.91 would be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up.  

If this count is in play, then it looks like we completed wave (iv) of [c]  at today's low and we are now in wave (v) of [c] up to complete the zig zag. 

Here's the chart from the July low which includes the alternate count:


SPX 1 min - wave [c] of minor 2 from the July low:




And here's a close up of the action from the 1020.95 high (wave (iii):


SPX 1 min - wave (iv) of [c] (or wave ii of (iii) of [c]):




So far, this wave (iv) pullback has stayed above 1088.96 and it looks like we may have started wave (v) up. If we take out that level before making a new high, then that will rule out the wave (iv) count. Looking at the close up chart above, an early warning that the count may be wrong would probably come if we take out the wave i high at 1097.20 assuming the labelling is correct and we are in wave iv of (v). Its possible that where I have wave iii is actually only wave [1] of iii, in which case, only taking out the wave ii low at 1093.75 on an assumed wave [2] of iii pullback would invalidate it.

The possibility that the 1020.95 high was only wave i of (iii) would then be in play. We have to stay above 1065.25 for that to remain valid. 

These are the levels to watch to rule out one or other of the counts.

As mentioned above, its possible to apply the double zig zag count to this Option given how far that has retraced. If we do that and that double zig zag did complete at the 1020.95 high, then minor 2 should be over and we should now have started minor 3 down.

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:



For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c]. With that complete, we would now be in wave (iii) of [c] down.

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, the possible counts for the move up from there are shown on the 60 min chart of the bullish alternate count for Option 4 on the 60 min counts page and on the 1 min chart posted here - its the last chart.

For the moment, I've assumed we completed a double zig zag for wave (ii) of [c] at 1020.95. Please refer to the comments and 1 and 5 min charts posted under Option 1 above.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.


Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:



On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

This is the same double zig zag shown for Options 1, 2 and 4, so please see the comments and 1 and 5 min charts posted under Option 1 above.



19:14 BST - SPX Update

On the completed double zig zag count, I'm thinking we may have completed wave 1 of (3) down from today's high, or it may be wave (3) itself. If its wave (3), this retracement up would be wave (4) and must not end above the wave (1) low at 1109.78. For the moment, I've labelled today's decline as wave 1 of (3), but we'll see how it goes:

SPX 1 min - completed double zig zag:


On the single zig zag count, we may have bottomed in wave (iv) of [c] and, if so, we have started wave (v) up. It looks best as a i-ii-[1] count at the moment, but will be invalidated if we take out the wave ii low at 1093.75. And, of course, today's low can't be taken out if we have started wave (v) up. Remember, if we're still in wave (iv), it can't end below 1088.96:

SPX 1 min - wave [c] of a single zig zag:


16:57 BST - SPX Update

The count for a complete double zig zag at 1020.95 still looks OK. We may well be in wave (3) down from that high. The alternative that we still needed to complete a wave (3) up within the [C] wave of the second zig zag has been invalidated because we took out the 1096.38 level mentioned in previous updates.

Here's how the double zig zag count looks now, from the 1020.95 high:

SPX 1 min - double zig zag completed:



I've put in a wave iii label at the lows, but it may still have more to go.

However, the count that has us in a single zig zag which still needs a 5th wave to complete remains intact until we take out the levels identified previously.

SPX 1 min - single zig zag in progress:


We could be near the end of wave [C] of y to complete wave (iv), so we need to watch any bounce to see how it behaves. Referring to the double zig zag count, if we bounce now and take out the wave i low 1107.41, that's going to invalidate the count on that chart, assuming we haven't yet seen wave iv of 3 of (3) and it will raise the odds that this single zig zag count is the one playing out.


 

16:12 BST - SPX Update: The incomplete single zig zag

This is the count for the bullish case which still requires a 5th wave to complete wave [c] of a single zig zag (see my earlier post summarising the counts for the move up from the July low):

SPX 1 min - wave (iv) of [c] of a single zig zag:




Watch the levels that will invalidate the counts shown on this chart: 1088.96 and 1065.25.

15:21 BST - SPX Update: Bearish Count

We took out the wave 2 high at 1112.41 today, but that doesn't kill the bearish count just yet. With the way the market came back in from today's high, the possibility remains that we topped at 1020.95. We would now have an expanded flat type correction for wave (2):

SPX 1 min - Double zig zag complete, (1)-(2) down:


The invalidation point is the 1020.95 high, so not too far away.

13:18 BST - Options Equity Put/Call Ratio Update

On 22 July we had a potential signal from the 5 and 10 moving averages of the CPCE that a market high might be near. However, it came with two warnings that the market could continue higher despite this signal. Both warnings played out and the markets did continue up, while those moving average of the CPCE continued to drop.

Yesterday, however, we saw both tick up, with the 5 ma possibly forming a double bottom. The 5 ma has not yet moved above the 10ma, so there's no real signal yet. Here's an updated chart:

CPCE Daily:



Still, its worth keeping an eye on this. If we have a top in on this rally from the July low, as one of my counts suggests, we should see these moving averages confirm it by the 5ma crossing above the 10 ma and both bursting up through the blue dotted line. If we have further upside to come, they will likely stay below the blue dotted line as they did in the area highlighted in green, while the market continues its climb higher.

For the moment, then, they are just saying that we should be alert to the possibility of a top, even though its not yet a confirmed sell signal.

12:12 BST - SPX Update: Summary of counts for the rally from the 1 July low

Here's a quick summary of the potential counts in play for the rally from the July low at 1010.91.

1) double zig zag:

SPX 1 min - double zig zag from 1 July:



As you can see from this chart (and from previous updates), its possible to count the double zig zag as complete at the 1020.95 high. The move from that high would be counted as nested ones and twos down. You can see close ups of this in the 1 min charts posted under Option 1 in last night's update.

However, as you can also see, we may only still be in wave (3) of [C] of the second zig zag (with wave 4 of (3) being what we have seen since the 1020.95 high). We need to take out the high at 1096.38 to exlcude this (see the 1 min charts under Option 1 in last nights update). If we do that, then its very likely that the double zig zag did top at 1020.95.

However, that doesn't necessarily seal the deal for the bearish case. It may be that its not a double zig zag, but only a single zig zag that has been playing out since the July low:

2) Single zig zag:

SPX 1 min - single zig zag from July low:



If this is what is playng out, then we're probably in wave (iv) of [c] of this zig zag, with wave (v) to come. We could only rule this out if we take out the wave (i) high at 1088.96 on this assumed  wave (iv) pullback. 

Even if we do that, it won't rule out the possibility that we're actually in an extending wave (iii) of [c]. I don't think that's the case since it would likely lead to a very large [c] wave which may not actually stay below the high that its supposed to be correcting (1219.80 on Option 3). However, its not impossible. It can only really be ruled out if we drop below 1065.25 before we make a new high.


In my view, that low, 1065.25, is a fairly important level to watch for the bearish case. It would not only scupper the alternative referred to above on the single zig zag count, but it would also severely damage the last potential count I have for the move up from the July low:

3) Impulse wave:

SPX 1 min - Impulse wave up from July low:



This count applies to the bullish alternative shown on the 60 min chart of Option 4 on the 60 min counts page. There, I've shown the move up from the low marked [ii] as a (i)-(ii)-i, but on the above chart, I show the other possibility that its all part of (i) of [iii]. 

To rule out the count shown on the above chart, we need to drop below 1088.96 in this assumed wave iv. In that case, the count on the 60 min Option 4 bullish alternative chart would come into play. That would be invalidated if we take out the 1065.25 low. That would lead to a very high probability that this bullish count isn't playing out. 

However, we couldn't rule out the possibility that we are in wave [iii] up until we take out 1056.88, the wave [ii] low. Even then, it may just be wave [ii] is forming an expanded correction. This would only be eliminated if we take out the July low at 1010.91.

So, that's the summary with the levels to watch. At the moment, the markets are set up to go either way. We just have to take it one step at a time and watch the important levels until the market rules out whatever counts we may be following.


10:18 BST - Dollar Update

Still looking for that potential low in the dollar. On 27 July, it looked like an ending diagonal was forming for wave [v] of C of intermediate (2). Its still looking that way. You can see from the chart below that I've shown a possible end to wave (2) at today's low of 81.664. However, wave (v) of the diagonal could go as low as 81.177 if the labels are correct. Beyond that, wave (v) would be greater than wave (iii) and that would invalidate the diagonal, so something else would be playing out.

Dollar Index 60 min chart:


If you were to take a long position now, you'd have a nice tight stop, just below the current low, so it may be worth a punt. However, if the diagonal is playing out and has ended, we really need to see an impulsive move to the upside that gets above the wave (iv) high at 82.381. If it does that, a three wave pullback (that obviously does not take out the lowest point of the diagonal) would present a safer entry. Until then, the risk remains to the downside, so caution is required on any long trade.

Wednesday, 28 July 2010

21:22 BST - SPX Update

The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each on the 60 min counts page.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. On the count on the chart of Option 3 that rally is correcting the whole decline from 1219.80, not just the decline from 1131.23. 

On the charts of Options 1, 2, 4 and 5 I have labelled a double zig zag count from the 1 July low ay 1010.91.

If its complete at yesterday's high, then for Options 1 and 2 we would now be about to start a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be about to start wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be about to start (iii) of [c] of minor Y down - again, temporarily bearish. 


On the chart of Option 3 I've labelled a single zig zag which  would be minute [c] of  minor 2 up. It does not yet look complete. However, note, the double zig zag count could also be applied here since that has retraced a sufficient amount of the decline from 1219.80 to be a minor 2 correction of that drop.  If that completed yesterday and we apply it to the chart of Option 3, it means that we should be starting minor 3 down now.


Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:




Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

Its possible to count the double zig zag as complete at yesterday's high. At that level, [Y] is about .70.7 x [W]. Also, within [Y], wave (C) is just over 1.618 x wave (A). Also, its about  a .886% retracment of the decline from 1131.23.

However, we may only be in wave 4 of (3) within the second zig zag. If wave ii is not complete, then the level to watch remains 1131.23 on any further rally. Exceeding that level will invalidate the count (though it won't preclude a continuing correction in wave (ii) - see the commentary on the 60 min counts page).

This 1 min chart shows the two possibilities. It shows the [C] wave of the second zig zag which started at the 1065.25 low (please note that the degree of the labels relates to Option 2):

SPX 1 min - (1)-(2)-1-2 down from 1020.95 or wave 4 of (3) of [C] of second zig zag:




And here's a close up of the move from yesterday's high at 1020.95, assuming that the double zig zag completed there:

SPX 1 min - close up of decline from 1020.95, assuming a complete double zig zag:




If we are still in wave (3) of [C], then please refer to the 1 min charts shown under Option 3 below which show how wave 4 of (3) may be counted.

If we're in this count showing nested ones and twos down, the first sign of trouble for the count would be taking out the wave 2 high at 1112.41 before we see 5 waves down to complete wave 3 of (3).  If we then go on to take out the wave (2) high at 1116.05, that may be a further sign that further upside above 1020.95 may be on the cards, though it may still be possible that wave (2) is just forming an expanded flat type correction.

Looking to the downside, the main level to watch is initially 1096.38. If that is taken out before we make a new high, it will rule out the wave 4  of (3) count.  After that, there is the low at  1065.25. If that is taken out, the chances are good that the corrective move is over. Until then, the risk remains that any declines will simply be a precursor to new highs.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:



For this Option, five waves down from 1131.23 represents wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would be about to start wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (although the wave degrees are different), so please refer to the comments and 1 min charts posted under that Option.


Option 3 - Ending diagonal complete at 1010.91

10 min chart:



For this Option, 5 waves down from 1131.23 to 1010.91 would be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up.  

It remains to be seen whether we completed wave (iii) of [c] at yesterday's high or only wave i of (iii) of [c]. Here's the chart from the [b] wave low:


SPX 1 min - wave [c] of minor 2 from the [b] wave low at 1056.88:




And here's a close up of the action from yesterday's high:

SPX 1 min - wave (iv) of [c] or wave ii of (iii) of [c]:




If we completed wave (iii) and are now in a  wave (iv) pullback we have to stay above 1088.96. If its only wave i of (iii), then we have to stay above 1065.25 on this pullback in wave ii of (iii). These are the levels to watch to rule out one or other of the counts.

As mentioned above, its possible to apply the double zig zag count to this Option given how far that has retraced. If we do that and that double zig zag is complete at yesterday's high, then minor 2 should be over and we should now be starting minor 3 down.

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:



For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c].

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, then, looking at the chart of Option 3, the high marked [a] would be wave [i] of A and the  low marked [b] would be wave [ii] of A - see the bullish alternate chart for Option 4 on the 60 min counts page.

For the moment, I've assumed we are completing a double zig zag for wave (ii) of [c], if it is not already complete at yesterday's high. Please refer to the comments and 1 min charts posted under Option 1 above.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.


Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:



On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

This is the same double zig zag shown for Options 1, 2 and 4, so please see the comments and 1 min charts posted under Option 1 above.



18:28 BST - SPX Update

If we topped yesterday, here's how the (1)-(2)-1-2 count is looking now:


SPX 1 min - (1)-(2)-1-2 down from 1020.95:






The count is invalid above 1116.05, but won't rule out a continuing wave (2) - that's only invalid if we take out 1020.95.

If we're still in the single zig zag (or only in wave 4 of (3) of [C] on the double zig zag count), we may have had a complete wave (iv) of [c] and be on the way up now in wave (v). However, we might need to retrace more of wave (iii), in which case, the move off today's low may only be a wave x in a continuing wave (iv):

SPX 1 min - wave [c] of minor 2:

15:59 BST - SPX Update

See the bigger picture in last night's update, but here are a couple of counts incorporating the move today:

SPX 1 min - (1)-(2)-1 down from 1020.95:



This count assumes yesterday's high was the end of a double zig zag from the 1 July low. Obviously, its invalidated above 1020.95, but for the count shown above, the first invalidation point is the wave (2) high at 1116.05.

Or, we're still in wave (3) of the [C] wave of that double zig zag and yesterday and today saw a wave 4 of (3) correction (see first 1 min chart at the end of last night's update, and see the count for the move down from yesterday's high on the following chart). Or, on the single zig zag count shown on the chart of Option 3, we're in wave (iv) of [c] of the zig zag or wave ii of (iii) of [c]:

SPX 1 min - wave [c] of minor 2 single zig zag:



This count is invalidated if we take out 1088.96 before making a new high (if we're in wave (iv)) or belwo 1065.25 (if we'r in wave ii of (iii).

13:55 BST - SPX Update: Interesting fib stuff

This is the updated chart that I posted at the weekend with some fib stuff relating to both time and price on 60 min chart of SPX:

SPX 60 min - fib time and price:



According to my calculations, with esignal using 7 hourly bars per day, 144 bars from the 1 July low hits some time today. You might recall that in the rally marked wave (ii), the rally lasted 145 bars, so it would produce a certain symmetry to see this wave ii rally end around the same sort of period.

Also, you might recall that the first leg of the wave (ii) rally was 65 points and the second leg was 89 points. On this wave ii rally, the first leg was 89 points and we have, so far, reached 64 points for the second leg. Again, it would be a nice symmetry of sorts to see yesterday's high end the rally from the 1 July low for this reason.

Whether or not it does, depends of course, on the wave count. One of the counts I have for the move up from the 1 July low suggests that the rally completed yesterday (see the first 1 min chart at the end of last night's update)  However, its by no means certain as you can see from the alternate count shown on that chart and also the count shown on the second 1 min chart at the end of that update.

So, we'll have to wait and see if this fib stuff plays out. While its all very interesting, more important, of course, will be to watch the important levels on the upside and the downside (see last night's update for some that I'm watching) to give us a clue as to near term direction.

11:33 BST - Markets Update: Is FTSE's move now predicting SPX will take out 1173.57?

For a while it seemed like FTSE was leading the main indices to the downside in a number of nested ones and twos (on the bearish count), but recently, its been showing strength and has taken out its high of 21 June 2010, whereas, so far at least, only the transports in the US have achieved this and not even the DAX, which has been the strongest of the main world indices (that I watch), has managed this.

So now, on FTSE, there is no longer a nested ones and twos count for the bearish case. Its now only a [i]-[ii] count, as you can see from this daily chart:

FTSE Daily - from April 2010 high:



You can see from this chart that FTSE has nearly reached the 61.8% retracement level of the decline from the April 2010 high. That level is in line with its declining weekly 200 ma. Perhaps, if FTSE gets up there, that is where it will turn down, if the bearish count is in play (its not certain that it will make it up there, especially not without the other main indices following - wave (y) of [ii] does look reasonably complete now on lower timeframes).
 
The Dax count also has a wave [i] low in early May, but so far, the wave [ii] high is the high of 21 June at 6330.81. At the moment, I have the Dax in a [i]-[i]-i-ii of (i) of [iii] count:

Dax Daily - from April 2010 high:


It doesn't really have to do much to take out the current wave [ii] high to turn it back into a [i]-[ii] count and align it with FTSE. The trouble is that it then doesn't have much room before taking out the April high, which would rule out the bearish count altogher, leaving the bullish count shown, where the move since April 2010 has been a triangle wave (X).

Of course, the Dax doesn't have to align exactly with the FTSE, so it could simply be leading the the way down with the bearish count as currently labelled, and not take out the existing wave [ii] high.

So, if FTSE and Dax had their wave [i] lows in early May, that coincides with the count I have on the chart of Option 1 for SPX - see the 60 min count page, but here is an up to date chart:



This raises the question whether SPX is actually still in wave [ii] and, therefore, likely to take out the high currently labelled as wave [ii] on that chart at 1173.57.

On the current bearish count under this Option, I have SPX in a [i]-[i]-(i)-(ii)-i-ii move off the April high. If we take out the 1131.23 high of 21 June, then it becomes a [i]-[ii]-(i)-(ii) count, which would be pretty much the same as the Dax is showing at present, though the second one and two on the Dax is a degree lower.  Its perfectly possible for SPX and the Dax to lag FTSE in this way to the upside and lead it down on this count, to the downside.

However, if it were to align itself fully with FTSE, that could mean it is destined to take out the current wave (ii) high at 1131.23 and, possibly, the current wave [ii] high at 1173.57, making the whole of the move since the flash crash in early May an expanded flat wave [ii] as you can see from the alternative labels on the chart.

Having said that, its perfectly possible for SPX to have had its wave [i] low in early May with FTSE and Dax, and for it to still be in wave [ii] instead of the nested ones and twos, but not take out the 1173.57 high. This would arise if we have a running flat in progress, which would mean that the alternative wave (y) of [ii] from 1010.91 does not get as high as the alternative wave (w) of [ii]. That could certainly be envisaged if the single zig zag from 1010.91 shown on the chart of Option 3  (see last night's update) is playing out  for the alternative wave (y) of [ii] - it may only need one more high to complete, which may make it unlikely that it will reach the 1173.57 level (see the 1 min chart at the end of last night's update).

So, the action in the FTSE does not necessarily mean that SPX will take out the 1173.57 high. However, the risk remains something to bear in mind until we take out meaningful levels to the downside - I identified some levels to watch in last night's update.

Speaking of upside risk, I should just mention also the potential of alot more upside as long as meaningful downside levels remain intact. You can see on the charts of FTSE and the Dax above the alternative bullish counts.

Unlike most of the main indices, FTSE does have a reasonably nice looking 5 wave count from the March 2009 low. You can see the alternative, bullish count I've placed on this chart which labels the April high as intermediate wave (1), or it could just be wave (A) within a larger primary wave [2] rally.  

The decline from the April high counts OK as  an A-B-C for wave (2),  but its only a 38.2% retracement of the rally from March 2009, so where I have wave (2) could just be wave W of (2) and we would now be in wave X of (2), or the decline from April may be the whole of wave (B) in a Primary wave [2] rally, so wave (C) up would now be underway.

If FTSE had a 5 wave move up from March 2009, this would coincide with the 5 wave impulse count I have for SPX (see here). On FTSE and SPX, that count isn't invalidated unless we take out the March 2009 lows - that's a long way away. 

If FTSE is in an (A)-(B)-(C) for primary [2], that would coincide with the counts I have for SPX shown as alternatives on the zig zag counts (see here), although those counts show SPX in second or third zig zags rather than a single zig zag, but the effect is the same. 

The Dax doesn't seem to have a 5 wave impulse count from the March 2009 low, but the whole rise from that low to the April 2010 high could just be wave (Z) in a primary wave [2]. That would make the decline from April 2010 a wave (X) - and it looks like a triangle which could well have completed at the 20 July low. We would really need to take out the low of wave A of the triangle at 5607.68 to rule out the triangle

So, with the invalidation points for the more bullish counts being so far below where the markets are currently, I don't think its wise to dismiss them from consideration, whatever you might think of the overall economy or the sovereign debt situation. Those issues can't be traded - we've seen that time and again, most recently with the rally from March 2009 which occurred against a backdrop of a largely deteriorating global economy.

The best we can do is to identify the possible paths the market might take, both bullish and bearish (whatever our own personal bias may be) and  from there, to identify the levels  in the market that will tell us when something is or isn't happening or which increase the odds in favour of one count or another.

Looking at the market in this way, I think we remain in a state of flux - either the bullish or bearish counts may be playing out. Nothing has happened so far to tell me that its one or the other. So I have to keep my eye on both.  Either of them has the potential to move quickly once it takes hold and I'm sure it won't be pleasant to get caught on the wrong side.