Monday, 30 August 2010

21:23 BST - SPX End of Day Update

I don't think that today's action has yet clarified whether we saw a bottom on 25 August or on 27 August (the latter would involve counting the last leg down as an expanding ending diagonal as shown in my post on Saturday) or what that bottom might be.

So, both bullish and bearish counts continue to be in contention as shown on the following charts (if you want a wider context for these charts, please look at the 60 min counts page). 

Bullish Counts: 

Chart 1: SPX 60 min - single zig zag from 1010.91 still in progress:

On this count, which applies to all of the bearish Options shown on the 60 min counts page, I'm showing a bottom on 27 August. This puts us at the start of the next leg up. On this count, that would be wave [c] of the zig zag.

This count for the move down from 1129.24, putting the low at 27 August can also be applied to the other two bullish counts below, and would make the rally off the 27 August low the next wave up in their respective counts. 

However, for current purposes, I'll retain the low on the those charts at the low on 25 August, which means one more new low is required to complete their corrections before they start their next legs up. Of course, this count could equally apply to Chart 1 above, with the same implications.

Chart 2: SPX 60 min - first bullish alternative under Option 4: impulse up from 1010.91:

Chart 3: SPX 60 min - second bullish alternate under Option 4: leading diagonal up from 1010.91:

So, even if we make a new low under the low of 27 August at 1039.70, while that would invalidate the count shown on Chart 1 above, the count shown on Charts 2 and 3 above (which can also apply to Chart 1) would simply mean a delay in the next leg up envisaged by these bullish counts and would not invalidate them. They would only be invalidated if we take out the low ay 1010.91.

Bearish Counts:

Chart 4: SPX 1 min - i-ii-[1]-[2]-[3]-[4] down from 1129.24:

This count retains the low at 25 August and counts Friday's high as wave [4] of iii down. I've labelled wave [4] as over at Friday's high. If it in fact has more upside to go, it has to stay below 1070.66 otherwise this labelling will be invalidated.

If we actually bottomed at the low on 27 August, using the expanding ending diagonal shown in Saturday's update, then that low was probably wave iii , which would make the rally from there wave iv not wave [4]. If that's right, any further upside in wave iv must stay below 1069.49, otherwise that alternative would be invalidated. This wouldn't be the best looking count since wave iii wouldn't be that much longer than wave i and really, it ought to have broken down out of the channel shown, unless we're going to see that sort of acceleration down in wave v.

For the moment I'll stick with the main labelling on the chart. If we can take out the wave [3] low without first making a new high above 1065.21, that would certainly provide more confidence in this count. However, as I said in Friday's end of day update, it does mean that wave [2] and [4] are both expanded flats so it may not be the best count.

Still, its valid. Here's a close up showing the decline from 1081.58:

Chart 5: SPX 1 min close up:

The leading diagonal possibilty I showed in the last post on this count was invalidated because what would have been the 5th wave became longer than the 3rd. That leaves the nested ones and twos - that certainly looks better with the late sell-off, but of course, we need more follow through. And, if the labels are correct, the next rally would be wave iv of 3 of (3) so can't end above the wave i of 3 of (3) low at 1053.57.

If we take out either or the levels mentioned above, 1070.66 or 1069.49, before making a new low, attention for the bearish counts would have to switch to the alternatives I've been showing. One is labelled on Chart 4 above - an [A]-[B]-[C] expanded flat for wave ii which could take us above the high at 1100.14.

The other two near term bullish counts within the bearish counts are shown in the chart below:

Chart 6: SPX 1 min - from 1129.24, i-ii-[1] or i down:

Both of these counts have scope for further upside. On the main count, its more limited since we're retracing the decline from 1100.14 and can't take out that level on this assumed wave [2]. On the alternative count, we're retracing the decline from 1129.24, so a good deal more upside is perfectly possible.

I've relabelled the main count as a (W)-(X)-(Y) for wave [2], which would mean one more up leg to come for C of (Y) of [2]. However, its perfectly possible that it topped at 1065.21 with an ending diagonal (C) wave as shown  in Friday's end of day update. However, the decline from Friday's high can be counted as a double zig zag in progress (as well as the ones and twos shown on Chart 5 above), so the risk of further upside remains in my view, unless we take out the 1039.70 low (even then, I'd have to consider the possibility of a flat or expanded flat in progress with more upside to come).

You'll see I've also noted on this chart the possibility that the low for either the main or the alternative count was on 27 August, not 25 August, using the count shown in Saturday's update with an expanding ending diagonal into the low at 1039.70.  In that case, we would be at a much earlier stage in the upward corrections and would more than likely see further upside before the declines resume.

So, we remain in a position where there are many possibilities as to what is playing out. In that situation, all that can be done is to identify the levels that would invalidate the various counts and let price action tell us. The elliott wave logic I've set out in previous updates cotinues to apply as follows:

1) if we take out the low at 1069.49 before making a new low below 1039.70, then that would rule out the possibility that we ended wave iii at that 1039.70 low and were rallying in wave iv (see comments under Chart 4 above - the possibility of a wave iii low at 1039.70 is shown on Chart 5);

2) if we take out the low at 1070.66 before making a new low below 1039.83, that rules out the main count shown on Chart 4 above;

3) the next count to look at would be the  i-ii-[1] which is the main count on chart 6 above That count remains valid unless we  take out the high at 1100.14;

4) if we take out that 1100.14 high, then we may be in the expanded flat for wave ii shown as an alternate on chart 4, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on chart 6),  or one of the more bullish counts shown in charts 1 to 3.

3) 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 shown in Chart 1 is 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 which which are shown in Charts 2 and 3 above.