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.
