So, on the bearish case, that 1219.80 represented a primary wave [2] top (see my Option 2 on the Long Term Counts page), the question arises whether we've completed minor wave 1 of intermediate (1) of primary [3], in the form of a leading diagonal - see my Option 3 on the 60 Min Counts page - or whether we're still in the process of a series of ones and twos down from 1219.80 - see Options 1 and 2 on the 60 Min Counts Page.
Here are some things I've been considering to try to answer this question.
For SPX, the way I have been counting it for the past several weeks has it complete for minor wave 1 on 1 July. Both the Dow and Nasdaq Comp can also be counted as complete diagonals on that date, althought their 3rd waves would have to on 8 June (because they went lower than their 25 May lows on that date) , whereas I have the 3rd wave on SPX on 25 May.
The Transports and the Russell can't be a valid diagonal at 1 July since what would have to be their 3rd waves are longer than their 1st waves. However, they would be valid diagonals ending on 8 June, but that's inconsistent with SPX, Dow and Nasdaq Comp.
The Nasdaq 100 just doesn't count as a diagonal at all - when SPX made its 3rd wave, NDX failed to make a new low, so couldn't have had a 3rd wave of a diagonal at that time. It also failed to make a lower low than what would have been its 1st wave when Dow, and Nasdaq Comp made theirs, on 8 June, so that couldn't have been its 3rd wave either.
Here's a chart of SPX on which I've noted some of the differences between the indices:
SPX 60 min chart:
So, there are diagonals there to be seen, except on NDX, but they have different 3rd wave lows, or different 5th wave lows.
However, if I look at the ones and twos counts (see Options 1 and 2 on the 60 Min Counts page) this can be applied to all of the indices mentioned above, including NDX, even though the Transports and the Russell made their most recent lows on 8 July, while the other indices made theirs on 1 July.
While there's no rule that all of these indices have to be in precise alignment with each other, and its perfectly possible that the Transports and the Russell led by making leading diagonal lows on 8 June, while SPX, Dow and Nasdaq Comp only completed theirs on 1 July, if we did make an important primary wave [2] top in April, it would make sense that they should be more aligned than applying the leading diagonal counts would allow. It would also make sense that in a primary degree 3rd wave, we would be stepping down in ones and twos, prior to a huge 3rd of a 3rd (of a 3rd on Option 1) to come. What could be more suitably bearish for a primary degree 3rd wave?
So, for the moment, I think I just slightly favour the ones and twos counts shown in Options 1 and 2 on the 60 Min Counts page.
Clearly, I need to be alert to the depth of this latest retracement from the 1 July low, but we've seen deep 2nd wave retracements before - see minor 2 on 11 December 2007 (70.7% retrace - .707 is the square root of .50), or minute [ii] of minor 3 on 26 December 2007 (70.7% retrace). We're at that level on SPX now on the counts shown in Options 1 and 2.
So, I don't think we can rule out the ones and twos counts solely on the basis that we've retraced more than a certain level, unless, of course, we move above the start of the 1st wave that is being retraced. In this case, that means 1131.23 (although I explained on the 60 Min Counts Page why taking out that level won't necessarily invalidate a ones and twos count). I'll be watching the pullback from the current rally closely since it may provide an early indication as to whether we did complete a diagonal on 1 July, or whether we are now in that 3rd of a 3rd wave down.
And of course, deep 2nd wave retracements give a good risk reward when looking to enter for a potential 3rd wave move - in that sense, the deeper the better. But it obviously makes it more difficult psychologically to make the trade. But isn't that the purpose of a 2nd wave?
