Sunday, 22 August 2010

11:49 BST - SPX Update: 5, 15 and 60 min charts (and the risk of a potentially higher retracement than currently expected)

Following on from my post on the weekly and daily charts, here's a look at the 5, 15 and 60 min charts:

SPX 5 min pitchforks:

This is a close up for the 5 min chart I posted here when I noted that a break above the blue fork that wasn't quickly reversed could mark the end of wave [1] down. I've also added the technical indicators I was watching on this chart on my esignal version of it.

You can see that after that post we slipped further down into the blue fork, but this created bullish divergences in the indicators and a double bottom in the stochastic. We then saw a large white candle break up above the upper line of the bule fork - I've circled it in green.

That's when I posted a 1 min chart suggesting we may well have seen the wave [1] low that we had been waiting for - click here.

For me, with the bullish divergences bewteen the technical indicators and price on this timeframe and the potentially complete elliott wave count, the buy signal was the break by the white candle I've marked with the blue arrow above the prior red candle which had closed very near its low. The inability of that red candle to follow through to the downside and the trade above its high on the very next candle, was a good low risk buying opportunity.

Now, as you can see from Friday's end of day update, we may have finished the first leg up of wave [2]. The sideways action that took place at the end of the day could be all or part of wave (B) of [2], assuming that what I've labelled wave (A) of [2] is correct. Its possible that it was all of wave [2], but it doesn't seem likely at the moment, with no bearish divergences showing up in the technical indicators, as you can see from this chart:

SPX 5 min pitchforks:

If the wave count for the move up from the 1063.91 low is right, and we still have a wave (C) up to come, I've marked on the chart the ideal area for the end of wave (C) of [2], as identified in Friday's end of day update . I would prefer it to end at the lower part of this area and what would be even more bearish is if it failed to hit the lower end of this area at all, perhaps stopping at the upper line of the pink fork.

If we were to take out the low of 1063.91 without making a new high, we'd have to assume that the high I have labelled as wave (A) of [2] was actually all of wave [2]. I'd then be looking for suitable short entries.

Here's the 15 min chart:

SPX 15 min pitchforks:

For the moment, what I'm seeing on this timeframe in the CCI and the RSI is consistent with a countertrend rally. Again, however, you can see, we haven't yet seen any bearish divergences between the indicators and price on this rally from 1063.91. That would be consistent with the elliott wave count calling for another rally high before the correction is over, which would be accompanied by the usual divergences in the indicators.

Here's the picture on the 60 min:

SPX 60 min pitchforks:

There are signs here too that we may have more upside to come. The MACD histogram is forming higher lows within the trough its in and the MACD itself looks like it could make a bullish cross. At the moment however, the RSI and the stochastics, while having moved off their lows, are consistent with a countertrend move up.

One thing to watch for, which I've noted on this chart is the possibility that the low at 1063.91 on Friday may actually have marked the end of 5 waves down from 1129.24, rather than the low at 1069.49.  It would have a large 4th wave if this is correct, but its perfectly valid. 

The reason I think its something to keep in mind is the profile of the MACD histogram. The lowest trough would line up with the 3rd wave, followed by a clear higher trough on the 5th wave. On the current count which has the 5th wave at the low of 1069.49, there was no lower trough - the MACD was positive at the time of this low. Obviously, that's still a divergence against the price low we currently have as the 3rd wave, but my ideal picture would have been to see a lower trough in the 5th wave rather than the histogram not going negative at all.

If we did only see the end of 5 waves down on Friday's low, the implication is for a deeper retracement in wave [2] than we are currrently expecting, maybe back to the 1100 area. I think its just something to keep an eye on for the moment.