Tuesday, 24 August 2010

15:17 BST - SPX Update: 60 min chart - possible leading diagonal from 1129.24

This is more like the action I've been describing as being necessary for us to see in order to increase confidence in the bear case. We still only have 3 waves down from 1081.58, so the two near term bullish possibilities I mentioned yesterday and this morning (see this morning's post here) are still viable, even if perhaps less likely. Hopefully we can get a clear 5 waves down from 1081.58 to pretty much rule them out.

Something else to keep an eye on is a possible leading diagonal for wave (i) - I'm showing this one using the degrees relating to Option 3 (see the 60 min counts page).

SPX 60 min - leading diagonal from 1129.24:

As noted on the chart, if its a leading diagonal and we're in wave v, wave v can't get below 1045.35 since that would make it longer than wave iii. If we don't get below that level on this decline, this count may be something to watch out for since a retracement of this diagonal for wave (ii) could be sharp.

I'd prefer to see the count that has us in wave iii of (iii) down (using the Option 3 degrees) play out since it would probably mean more downside now. As I said at the weekend and in the updates since, I really think we need to see these 3rd of 3rd waves get going to the downside if we are actually in the bear counts - a wave (ii) retracement after a leading diagonal at this stage would just mean further delay in seeing that kind of action. Hopefully we can rule this one out soon (although we'd also have to take out 1040.39 to preclude counting the decline from 1100.14 as wave iii of a slightly larger leading diagonal).

In the meantime, you can see from the chart that we are now into an area of price void with little or no price support down to 1010. It doesn't mean that the market can't just stop falling, but in theory, there's nothing really to stop it.