Tuesday, 17 August 2010

21:17 BST - SPX End of Day Update

The Options referred to below are different ways to count the move down from 1219.80 to 1010.91 and you can see them on the 60 min counts page.

To see the various ways to count the rally from the 1010.91 low on 1 July, see the 10 min charts in last night's end of day update.

In tonight's update I'm concentrating on the move from the 1129.24 high and the rally we have seen since the low at 1069.49.

Here is the 1 min chart of the decline from 1129.24. This is the bearish count for all of the Options shown on the 10 min charts in last night's update, although the labels, including the degrees of those labels, relate to Option 2:

SPX 1 min - decline from 1129.24:

We appear to have seen a nice 5 waves down from the 1129.24 high to the low at 1069.49. This would be wave i down on the bearish count.  The rally from the low at 1069.49  would be wave ii. It has to stay below the high of 1129.24 in order for this bearish count to remain valid.

The move up from 1069.49 could be counted as a double zig zag, but I've labelled a single zig zag which consists of 5 waves up for wave [A], a 3 wave pullback in wave [B] and 5 waves up for wave [C].

The question is whether or not we've completed wave [C]. You can see the alternate labels I've put on the chart which suggest we may have another leg up in wave (5) of [C] still to come. We may have had 5 waves down from today's high, as you can see from the second chart above. However, this could be a c wave in an expanded flat correction or an a wave of a correction. or it could count as a zig zag. For the moment, I've labelled it as wave (1) down.

Here's a closer look:

SPX 1 min close up:

If we take out the high at 1089.05 which is the alternate wave (1) of [C] high, without a new high first, then we can eliminate the alternate count. Taking out that level would also increase the likelihood that this single zig zag has topped. Today's high would certainly be a good place for a wave ii top. Its at the 50% retracement level which is where I said in last night's update I would ideally like to see wave ii end.

However, until we start dropping in a manner consistent with having completed a 2nd wave corrective retracement and we see important levels to the downside taken out, the risk of more upside remains. 

Any further upside could be within the context of the overall bearish counts shown on the 10 min charts in last night's update and in the 1 min charts above, provided we stay below 1129.24. However, as long as no significant level to the downside is breached, the risk of further upside in the bullish counts remains and these could take us substantially higher.

The two bullish counts I've been posting are under the bullish alternate for Option 4. You can see the bigger picture of the bullish alternate  on the second chart under the Zig Zag from March 2009 page, where it is shown as the alternate count and a further explanation and context can be found on the 60 min counts page.

Here are two possible ways to count this bullish alternate:

SPX 1 min - bullish alternate under Option 4, impulse up from 1010.91:

This count won't be eliminated until we drop below 1056.88. (see the chart of this count on the 60 min counts page which shows that level). 

However, if the labels shown are correct, and we are in wave [4], we would have to stay above 1082.62 otherwise this labelling would be invalid. 

If we take out that level, it might still be a [1]-[2]-(1)-(2) up from 1069.49. To avoid that, we'd need to take out the low at 1075.16. If we take out that level it would be unlikely that we were seeing an impulse wave up from 1069.49. 

Still, until we take out 1056.88, this count remains a possibility, since until then, we could still be in wave (ii).

SPX 60 min - bullish alternate under Option 4, leading diagonal from 1010.91:

This count will only be invalidated if we drop below 1010.91. The levels to watch referred to in relation to the first alternate for the bullish count apply here too.

However, if we take them out, the possibility remains that we are still in wave B. So, really, we need to take out the low at 1010.91 in order to invalidate this count.

So, if we're in a wave ii retracement, if there is any further upside to come, the high of 1129.24 cannot be taken out. If it is, the bearish counts, as labelled, will be invalidated.

It wouldn't mean that all bearish counts would be off the table, it would just mean a delay in the resumption of the bear case - see the explanation of what a high above 1129.24 (and 1131.23) could be on each Option on the 60 min counts page.

For a step by step elimination of the bullish possibilities, the  levels to watch to the downside which I've referred to above are 1089.05, 1082.62 and 1075.16. After that, we have 1069.49, 1056.88 and finally 1010.91.