Saturday, 24 July 2010

16:01 BST - SPX Update: Ending diagonal wave (c) in a zig zag from the July low

In Thursday night's 22:41 BST update, I said that we might be forming an ending diagonal from the 1056.88 low. That could still be the case with Friday's action. The tentative lines I drew in for the diagonal at that early stage have altered, and I've also altered the count for Option 3 from being in wave (v) of [a] to being in wave [c] of 2 (although the former remains possible and could mean alot more upside to come).

Here is the updated chart:

SPX 1 min chart - zig zag from 1 July low:


The potential ending diagonal is marked by the red lines and the labelling is highlighted with yellow circles. If wave (iii) of the diagonal is not yet done, the wave (iv) pullback mustn't get to the blue dotted line - that's where the lines would be parallel instead of converging. If we don't make a higher high on Monday (for wave (v) of the diagonal) and then get to that blue dotted line, then I would say that we are in the main count, namley, a (i)-(ii)-i for wave [c]. If we take out the 1065.25 low than that would be invalidated. In that case, we'd probably be in one of the other, more bearish counts. 

Or, perhaps we'll be able to say that we had a rule breaking ending diagonal -  waves (i) and  (ii) of the diagonal would be where I have them for the (i)-(ii)-i count, wave (iii) of the diagonal would be where I have the highlighted wave (i), wave (iv) would be where I have the higlighted wave (ii) and wave (v) would be where I have the highlighted wave (iii). It would be rule breaking because wave (iii) would be longer than wave (i), albeit by about 0.17 points. Would that really rule it out as an ending diagonal? 

If we do make a higher high on Monday, provided it stays below 1112.98, then the diagonal count is still potentially valid. We would need to see a quick reversal back to the start of the diagonal at 1056.88 to gain confidence that it is the correct count.

Note: this single zig zag count could also apply to the bearish Options, 1, 2, 4 and 5, where I currently have double zig zags. Its more likely to be applicable there if wave C is forming an ending diagonal which is nearly complete, given that for those Options, the 1131.23 high is the limit for their corrective waves.

Two bullish possibilities to be aware of with this diagonal:

1) it could be a leading diagonal 1st wave within a 3rd wave up - on the bullish alternative chart of Option 4 posted on the 60 min counts page, you will see that I have a wave [i] and [ii] from the 1 July low. This diagonal could, therefore, be wave (i) of [iii] on that count. We'd have to take out the 1056.88 low to avoid this;

2) using the original count I had for Option 3 where 1099.46 was wave (iii) of [a] and 1056.88 was wave (iv) of [a], the diagonal could be an ending diagonal wave (v) of [a], so, after a wave [b] pullback, we would have further upside in wave [c]. We would need to take out the 1010.91 low to avoid this.