Friday, 27 August 2010

21:16 BST - SPX End of Day Update

Well, we got the lower low below 1039.83, but it doesn't appear to have been a 5 wave move from the prior peak at 1061.45, which should mean that it wasn't the end of an impulse wave (whether a wave i, iii, (c) or [c]) down.

That would mean it should be counted as a (X) or (B) wave in an expanded correction.

The following charts show this in the context of the bullish and bearish counts (for the context of these charts, please see the 60 min counts page).

Bullish counts:

Chart 1:  SPX 60 min - single zig zag from 1010.91 still in progress:

This count applies to all the Options on the 60 min counts page.

You'll see on this chart why I don't think we've started the [c] wave up that should occur once the wave [b] correction shown ends. Essentially, we needed 5 waves down from 1061.45 for wave v of (c), but it appears that we only got 3 waves. 

So, this count suggests that we need one more low to complete wave [b] before we launch up in wave [c].

Chart 2: SPX 60 min - first bullish alternate under Option 4: impulse up from 1010.91:

You can see that the the point made in respect chart 1 above also applies here. So, it seems that we ought to see another wave down before we launch into a significant rally.

Chart 3: SPX 60 min - second bullish alternate under Option 4: leading diagonal from 1010.91:

The same comments apply - it looks like we need another leg down before we rally.

Bearish counts:

Chart 4: SPX 1 min - from 1129.24,  i-ii-[1]-[2]-[3]-[4] down from 1129.24:

For the reason explained in relation to the bullish counts, today's low should not be the end of wave iii down even though it went lower than 1039.83, because the move down from the prior high at 1061.45 apppears to only have been 3 waves and 5 waves were needed for wave [5] of iii.

So, it appears to be best counted on the basis of this labelling of the decline from 1129.24 as part of wave [4] of iii.

As shown on chart 4, this count is invalidated at 1070.66, (I've moved the wave [1] label to that low since the earlier posts). With wave ii where it is, that level of 1070.66 may  look better as wave [1], but it does mean that both waves [2] and [4] are expanded flats - not a rule breaker, but it is contrary to the guideline of alternation.

So, although this count remains valid until we take out 1070.66,  because of the issue with the [2] and [4] being the same type, of correction it probably means one of the  other alternatives for the bearish case is more likely to be playing out.  However, for the moment, I'll let the market decide by invalidating it (or not). 

Here's a close up of the count shown in chart 4 count:

Chart 5: SPX 1 min close up:

I've shown a complete ending diagonal for wave (C) of [4], but it could go higher. Wave 5 must, however, stay below 1068.74 to remain shorter than wave 3, assuming I have my labels in the correct place.

If we've completed wave [4] with an ending diagonal (C) wave, we need to drop hard now. A failure to do so raises questions about this count and would raise the odds that one of the alternates for the bearish case (or one of the bullish counts) is playing out.

One of those alternate bearish counts  is shown on  chart 4 above. It has us still in wave ii in the form of an expanded flat. 

Here's a chart with the other two alternate counts for the bearish case:

Chart 6: SPX 1 min - from 1129.24, i-ii-[1] or i:

Both of these counts still look good. 

On the main labelling, we're retracing the decline from 1100.14 so can't take out that high in this wave [2]. So far we've retraced about 38.2% of that decline. It could be enough for a 2nd wave at this stage of the overall bearish count which has us in a 3rd wave down at multiple degrees. However, the diagonal I've drawn in from today's low could be a leading rather than ending diagonal, so would only be the 1st wave of (C).

If we see a 5 wave decline and a 3 wave rally that stays below the high, there's a good chance that we may have topped. Another 5 waves down would have to follow this sequence, whether its an impulse down or a correction before another rally to take out today's high, so once we see another 5 down, we'd than have to stand back and see what happens on the next retracement back up. 

The alternative labelling on this chart implies alot more upside potential since it would be retracing the decline from 1129.24,  so another reason for caution if looking for short entries.

The logic set out in previous days still applies if we invalidate the main bearish count shown on chart 4 above by taking out the low at  1070.66:

1) the next count to look at would be the  i-ii-[1] which is the main count on chart 6 above That count remains 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 chart 4, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on chart 6),  or one of the more bullish counts shown in charts 1 to 3.

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 shown in chart 1 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 which are shown in charts 2 and 3 above.

Have a great weekend!