Wednesday, 25 August 2010

21:17 BST - SPX End of Day Update

Well, we got the 5th wave down that we wanted to see from the 1081.58 high. However, exactly what this represents in the context of the move down from 1129.24 remains an open issue. There remain both bullish and bearish counts (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).

Bullish Counts:

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

This count applies to all the Options shown on the 60 min counts page. It means more upside before the overall bearishness of the counts shown under those Options takes over and pushes the market down.

It wouldn't be ideal if we take out today's low, but if that happens in an extending 5th wave within wave (c) of [b], that's fine. However, it has stay above 1010.91, otherwise the count will be invalidated.

SPX 60 min - first bullish alternate under Option 4: impulse wave from 1010.91:

Again, taking out today's low wouldn't be ideal, but as long as we stay above 1010.91 this count is valid.

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

The comments made under the first two bullish counts apply here too,

In all of these bullish counts, the next move up should be an impulse wave which carries the market above the 1129.24 level and, in the case of the bullish counts relating to Option 4, to new highs above 1219.80.

A lack of impulsive upside action will call these counts into question, though until we fall below 1010.91, they will remain viable.

Bearish counts

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 today's low:

SPX 1 min - from 1129.24:

On the basis of this count, we're seeing wave [4] of iii play out at the moment. That being the case, we can't take out the low of wave [1] of iii  (at 1063.91) in this wave [4] since that would invalidate the count.

If that were to happen, you can see the alternative count shown on this chart which assumes that we are still in wave ii and have not yet started wave iii. The low today 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.

Here's a close up of the main count:

SPX 1 min close up:

Really, we need to start dropping now in wave [5] of iii since there's not too much more room available for wave [4] to move up without invalidating the count.

As shown in yesterday's end of day update, there are other counts which might apply if we do invalidate the first bearish count above. One, the leading diagonal wave (i) down from 1129.24, was invalidated today with the move below 1040.39, but the other two shown in this chart remain valid:

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

Either of these counts look good at the moment. The difference between them is the level of retracement we may see. 

If today's 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 today's low 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 yesterday's end of day update, 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 assuming we made a low today, we need to watch the behaviour of the move up to try to determine which of the above counts may be playing out. If we stay below 1063.91 on this current rally, the chances are that its the main bearish count shown above. 

If not, then the next count that could be excluded is the i-ii-[1], if we take out the high at 1100.14.

If we take out that level, then we may be in the expanded flat for wave ii shown as an alternate on the chart of the main bearish count above, or the count that has us having only completed wave i down from 1129.24, or one of the bullish counts. 

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 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 above.