Thursday, 26 August 2010

21:13 BST - SPX End of Day Update

So far, the main bearish count has lived to fight another day. However,  that doesn't make it right since none of the other counts, of varying  degrees of bullishness, have been eliminated as yet (you'll need to read the 60 min counts page if you want to see the context of the following charts and to understand the reference to the Options mentioned on that page).

I showed the charts of the three (potentially) very bullish counts in yesterday's end of day update, so won't post them all again. Suffice it to say that the counts shown in that update still stand and will do so until 1010.91 is taken out. You can read that update by clicking here.

Turning to the bearish counts, and using the degrees applicable to Option 2, the main bearish count remains that we are in a i-ii-[1]-[2] down from 1129.24 and completed wave [3] in that sequence at 1039.83. Yesterday's move off that low and into today's high is counted as wave [4] of iii and we would now be in wave [5] of iii. Here's the view of the count from the 1129.24 high:

SPX 1 min - from 1129.24:

Here's a close up of it from the wave [2] of iii high at 1081.58:

SPX 1 min close up:

So, from today's high, we have what looks like a good start to wave [5] of iii down. But its not conclusive that this is the correct count.

Since we remain above the low of 1039.83, the moderately bullish alternative counts for this overall bearish count remain intact.

The first of those is the one you can see on the first chart above which assumes that we are still in wave ii and have not yet started wave iii. The low at 1039.83 would be wave [B] of ii in an expanded flat. Currently, the move down from 1100.14 can be counted as a zig zag for wave [B]. This would mean a substantial rally would now take place in wave [C] of ii, likely to above 1100.14.

As shown in yesterday's end of day update, there are other counts which might be playing out which would involve more upside before we start a major decline. Theses are shown on the following chart:

SPX 1 min - from 1129.24, wave i-ii-[1] or wave i down:

If the 1039.83 low was wave [1] of iii then we will now be retracing up in wave [2] but we can't exceed the high at 1100.14, otherwise, this count is invalidated.

If 1039.83  was only wave i, then we could, in theory, retrace all the way back up to 1129.24 without invalidating the count. However, as explained in prior updates, we'd probably be more likely to see a 50%-61.8% retracement (and preferably the lower end of that) given that the larger count has us in wave [iii] down.

So, having stayed below 1063.91 on the move up from 1039.83,  there's a good chance that the main bearish count could be the one that is playing out. 

However, if, before making a new low below 1039.83, we were to rally up and take out 1063.91, invalidating the main bearish count,  then the logic of elliott wave remains as set out yesterday:

1) the next count to look at would be the  i-ii-[1] which is the main count on the third chart above That would remain valid unless we  take out the high at 1100.14;

2) if we take out that level, then we may be in the expanded flat for wave ii shown as an alternate on the  first chart above, of the main bearish count, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on the third chart above),  or one of the more bullish counts (see yesterday's end of day update);

3) if we take out 1129.14, that will eliminate those two remaining bearish counts for the move down from that high, but the first bullish count (see yesterday's end of day update) is, you'll recall, bearish once wave [c] of 2 completes. If that count is in play, we would need to see impulsive downside action once wave [c] and 2 end, otherwise, focus will have to switch to the bullish counts under Option 4 which were summarised in yesterday's end of day update.

It should be said that for the main bearish count, we obviously need to see 1039.83 taken out. However, taking out that level doesn't guarantee that its that count that is playing out. 

One thing I'm looking at is the lack of acceleration down in this move from 1099.77, which I'm labelling as a 3rd wave. Its not really any steeper than the 1st wave of the same degree which is the wave down to 1069.49. Also, we haven't broken the channel you can see on the first chart above - as you can see from my note on that chart, the 3rd wave should have done so.

Maybe we will see that acceleration occur in this wave [5] of iii. But if not, I think the wave behaviour starts to favour one of the other three counts shown above which don't count that section of the move down as a 3rd wave (I'm assuming that the overall bearish counts are playing out and ignoring the more bullish counts for the moment). This is just something to bear in mind. It may be sensible to just let the market rule out the main bearish count either as described above or,  if we make a new low for wave [5] of iii, on the wave iv retracement which would have to stay below 1069.49 for this count to remain valid.