Wednesday, 18 August 2010

21:19 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. 

So, today's action continues to leave us guessing whether its the bullish or bearish counts that are in play.

Here are two 1 min charts showing the bearish counts  for the move down from 1129.24 (these are shown on the charts of Options 1 and 2 - to see those Options in context, please see the 60 min counts page - but they apply to the bearish counts on all the Options):

SPX 1 min chart: expanded flat 2nd wave correction:

SPX 1 min chart: zig zag 2nd wave correction:

And here's a close up of the second chart focusing on the action from the 1069.49 low and showing a possible alternate count that would involve more upside (I've labelled the start of an impulse wave down from today's high, but it could just as easily be part of the (B) wave of [Y] on the alternate double zig zag count):

SPX 1 min close up:

The difference between the two counts is that in the first chart we bottomed in the 1st wave at 1076.69 and in the second chart we bottomed at 1069.49.

On the first chart, if we take out the low at 1085.76, we can probably conclude that the correction is over. On the second chart, taking out that level would negate the alternate count of a double zig zag, but would not preclude the possibility of a second zig zag if we have only seen one zig zag so far, as the main count suggests.

However, for both bearish counts, with the bullish counts still in play (see below), we really can't have great confidence in them until we take out 1069.49. 

Here are the two bullish counts, which arise 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):

SPX 1 min chart: bullish alternate under option 4 - impulse up from 1010.91:

If we've started wave (3) of [3] up on this labelling, we can't take out the low at 1085.76. 

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

On this count, a truncated wave (v) of [i] of C isn't ideal, but its not against the rules. The count as labelled would, however, be invalidated below 1069.49. However, it would only be invalidated altogether if we take out 1010.91 - until then, we could still be in a B wave correction.

So, if we're in a 2nd wave 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.

The first level to watch to the downside is now 1085.76. If we take that out, the first bullish count shown above would be invalidated as labelled. However, that would still leave the second bullish count and that won't be invalidated until we take out 1010.91. 

Until then, there is probably going to remain uncertainty as to whether the bullish or bearish counts are in play, so we  just have to monitor the wave counts and continue to identify the levels that might provide an early signal of the market's intentions.