Thursday, 12 August 2010

21:22 BST - SPX 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, which will put the charts below into context.

The 10 min charts below show various ways to count the rally from the 1010.91 low on 1 July in the context of the larger picture shown on those 60 min charts.

On the charts of Options 1 and 2, I'm showing a single zig zag. On the chart of Option 3, there is a triple zig zag,  on the chart of Option 4 there's a double zig zag and on the chart of Option 5, there is a single zig zag with an ending diagonal for wave (c).

Here are the 10 min charts of each Option:

Options 1 and 2 - from 1010.91, a double zig zag:

The chart relates to the count for Option 2, but the count for Option 1 is pretty much the same into the high, just one degree lower, namely, a single zig zag which is complete at 1129.24. 

Option 3 - from 1010.91, a triple zig zag:

On this Option, I've shown the rally from the July low as a triple zig zag, also complete at the 1129.24 high.

Option 4 - from 1010.91, a double zig zag:

A double zig zag count also complete at the 1129.24 high, is shown on the chart of this Option.

Option 5 - from 1010.91, a single zig zag with an ending diagonal for wave (c):

On the chart of this Option I've shown a single zig zag count, with an ending diagonal wave (c).

On all of the above bearish (Options 4 and 5 are only  near term bearish) counts, we can count a corrective wave high at 1129.24. If that's correct, it doesn't really matter whether its a single, double or triple zig zag. The important thing now is what has happened since the high at 1129.24.

Here is the 1 min chart of the decline from 1129.24. This count applies to all of the Options shown above, although the labels, including the degrees of those labels, relate to Option 2:

SPX 1 min:

As anticipated in last night's update, we did take out the 1088.01 low, so that precludes a further extension of the zig zags shown on the charts of Options 1, 2, 3 and 4 (it was precluded on Option 5 when we dropped below 1107.17 yesterday), at least on the labelling shown on those charts.

You can see from the 1 min chart that the decline from 1129.24 does look like its forming an impulse wave. On the main count I have on the 1 min chart, we haven't quite completed 5 waves down from that high, though I've noted on the chart the possibility that we may have. The main count has us in wave [4] of i down.

If the main count is correct, a 38.2% retracement would take us to about the 1095 area. Its possible that its complete today. It would be a shallow retracement, falling short of even the 23.6% level at 1088.60, but that would still be acceptable for a 4th wave. If there is more upside to come, then wave [4] would have to stay below the wave [1] low of 1111.58.

If we take that out, then, for the bearish case, we would have to switch to the alternate count mentioned on the chart, that today's low was wave [5] and wave i, so we would now be retracing back up in a wave ii. For the bearish count to then remain valid, wave ii must not, of course, exceed the high of 1129.24.

If we were to exceed that high, then, obviously, something potentially more bullish is playing out. One possibility would be the bullish alternates I have been posting under 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.

I have two possible ways to count this bullish alternate:

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

This count has altered since last night with the break of the low at 1088.01. It was a [i]-[ii]-(i)-(ii)-i-ii. Now its just a [i]-[ii]-(i)-(ii), with wave (ii) being an expanded flat. It may not be pretty, but it looks valid. It won't be eliminated until we drop below 1056.88.

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. However, you'll see from the Zig Zag page referred to above and from the Impulse from March 2009 page, that even taking out that low does not mean that we are headed down in the out and out bearish counts (you can see the longer term perspective for these and the extremely bullish count on the Long Term Dow Counts page). Those counts can accommodate a decline to well below that level (especially in the case of the impulse count from March 2009) and yet still lead to higher all time highs in the not too distant future.

So, with bullish counts still on the table, looking at where we are now, the warning signs for a potential problem for the bearish case will be if we take out 1111.58 in this assumed wave [4] that I have shown as the main labelling on the 1 min chart above. 

Doing that will potentially leave only a 3 wave decline from 1129.24.

It could still be that we are in a very bearish count, if today's low was only wave (1) of [3] - a possibility I showed might be playing out in last night's update. That would be invalidated if we take out the high at 1127.16 and would be the second warning of something amiss with the bearish count.

The final warning would come if we take out 1129.24 since that would preclude the alternate count shown on the 1 min chart above, that we had completed a 5 wave impulse down from 1129.24.

So, those are the levels to watch for signs that thie bearish count shown on the 1 min chart above is wrong and that we may be seeing something more bullish occuring.

To the downside,  the level we need to take out to provide further encouragement for the bear case is 1010.91, although, for the reasons mentioned above, it still won't be conclusive.