Tuesday, 3 August 2010

21:16 BST - SPX Update

The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each on the 60 min counts page.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. On the count on the chart of Option 3 that rally is correcting the whole decline from 1219.80, not just the decline from 1131.23.

Its possible to label  a complete single, double or triple zig zag from the 1 July low at 1010.91 to the high at 1127.30.

If complete today,  then for Options 1 and 2 we would be starting a 3rd of a 3rd wave down at various degrees - both very bearish.  For Option 3 we would be starting minor wave 3 down - again, very bearish. For Option 4, we would be starting wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be starting wave (iii) of [c] of minor Y down - again, temporarily bearish. 

However, its also possible to label the single and double zig zags as incomplete and requiring at least another rally in a 5th wave before they are done, so there remains a possibility of further upside before a corrective move up from 1 July can count as complete.

Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:

Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

I've shown  the double zig zag count on this chart. It remains valid on this Option provided we stay below 1131.23. If we exceed that level, there is still a bearish count in play (see what I have said under Option 1 on the 60 min counts page), but I don't think it would look very attractive and I think I would abandon this count if that occurs since the alternate shown under Option 2 on the 60  min counts page would look much better if 1131.23 is taken out.

Although I've shown on this chart a complete double zig zag from the 1 July low, its possible that today's action was all or part of a wave 4 triangle and that we have one more high to come to complete the double zig zag - see this count  on the chart of option 5 below. 

If we take out today's low without making a new high first, the triangle 4th wave would be invalidated. It may be possible that we are still in the 4th wave of (C), provided we stay above 1104.32, so even if we take out today's low, we couldn't rule out some further upside to come unless 1104.32 is taken out.

That would be the initial level to watch, but more important would be the low at 1088.01 and then the low at 1056.88.  Until those levels are taken out, the bullish counts shown under Options 3 and the bullish alternate under option 4, still have the ability to take the market higher.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:

For this Option, five waves down from 1131.23 represents wave (i) of [iii] of minor 1 down. The move up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would now be in wave (iii) of [iii] down.

On this chart I've shown the possible triple zig zag count. To remain valid, we need this to stay under 1131.23. However, even if we take out that level therefore voiding the [i]-[ii]-(i)-(ii), we could still be counted as being in a [i]-[ii] down from 1219.80. As explained on the 60 min counts page, that would not look at all bad under this Option.

I don't like the possibility of a continuing 4th wave on this count because it would look out of proportion to the 2nd wave of wave [C], so I would say that the triple zig zag should be complete at the 1127.30 high and if we take that out then its more likely that the single or double zig zag is actually playing out. 

As explained under Option 1 above, if we have completed a triple (or single or double) zig zag, we need to take out the 1088.01 low to start with.  From there, we need to follow through with impulsive declines that have the character of a 3rd of a 3rd wave and take out 1056.88. Until then, the trend remains up and care is needed on the short side.

Option 3 - Ending diagonal complete at 1010.91

10 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 would be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up. I've labelled minor 2 as having completed today, but its feasible that:

1) we've only seen wave (i) of [c] of minor 2 and not the whole of wave [c]. Taking out the wave [b] low at 1088.01 will eliminate that as a possibility; or

2) we're in a wave (iv) triangle - taking out today's low would eliminate this; or

3) 1127.30 was only wave (iii) of [c] and wave (iv) was an expanded flat ending at today's low. If we take out today's low without a new high first, this is ruled out; or

4) wave (iv) could be forming a deeper correction and we've only seen the  a and b waves today. This is valid provided wave (iv) doesn't end below 1104.32.

These possibilities apply whether we are labelling a single or a double zig zag from the July low.

If we've completed minor 2, we should see an implusive decline from here that quickly takes out the wave [b] low at 1088.01. Anything less leaves open the possibility that there is more upside to come.

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:

For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double/triple  zig zag up from 1010.91 would be wave (ii) of [c]. With either of those complete, we would now be starting wave (iii) of [c] down.

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, the possible counts for the move up from there are shown on the 60 min chart of the bullish alternate count for Option 4 on the 60 min counts page which shows a [i]-[ii]-(i)-(ii)-i up from the July low. An alternative  [i]-[i]-(i)-(ii)-i count is shown on this chart:

SPX 1 min - Impulse from July low:

For the moment, I've assumed we completed a single/double/triple zig zag for wave (ii) of [c] at 1127.30. Please refer to the comments made under under Options 1 to 3  above.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.

Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:

On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

This is the same double zig zag shown for Option 1 but I've shown it as incomplete and requiring a further high. However, the comments made under Options 1 and 3 apply equally here.

If we do take out 1131.23, under this option there remains a bearish interpretation - it may just be completing a more complicated X wave before starting wave Y down. I've shown this as a possible alternate on the chart of this Option.