Tuesday, 31 August 2010

21:30 BST - SPX End of Day Update

The market continues to behave in a way that means both bullish and bearish counts remain feasible, with all of the levels I'm watching to invalidate one or other still intact.

I updated the bullish counts earlier (see here) so won't deal with them again in this update. If you want to see those counts and the following charts in context, please go to the 60 min counts page.

So, here is the position on the bearish counts:

Chart 1: SPX 1 min - from the 1129.24 high, i-ii-[1]-[2]-[3]-[4]:

The main labelling puts us in wave [5] of iii down from 1129.24. As shown in my earlier post, it may be that wave [5] and, therefore, wave iii, ended at the low of 1040.88 that we saw today, with a slight truncation. In that case, we'd now be in wave iv up. 

However, for the moment, I'm assuming that we are still in wave iii because I think it would make more sense if wave iii reaches something like a 1.382 extension of wave i rather than being more or less equal to it. Still, if we take out the high at 1065.21 without a 5 wave decline preferably below 1039.83, the truncated 5th within wave iii would certainly be an option to consider.

I've re-labelled today's action from earlier to show us still in wave (2) of [5]. Its possible that wave (2) topped at 1055.14 as shown earlier and we've had a 1-2-i-ii down since, but for the moment, with that late rally, I'll assume more upside unless we take out the 1044.02 low without taking out the 1053. 75 high first (you can see more detail of this on chart 2 below).

I think that the alternate count shown on this chart, that has us still in wave ii in the form of an expanded flat, is becoming less likely as time goes on, as mentioned in my earlier post, but it remains a valid possibility.

Here's a close up of the above chart showing the main count as well as as the possibility that wave iii has already bottomed:

Chart 2 - SPX 1 min from the 1081.58 high:

If we've had a wave iii low, there are two places where it may have occurred, as you can see from the chart. The only difference it makes is that if it was at today's low, we probably have a bit more time to use up for wave iv so could see more upside for longer. Whichever low might be right, the fact is that if we are now in wave iv, it has to stay below 1069.49, which is the wave i low, otherwise the possibility would be eliminated.

If we take out that level or the 1065.21 level, invalidating the counts shown above, then, for the bearish case, I'll be looking at the other bearish counts I'm following which imply more upside above 1065.21 and probably also above 1069.49:

Chart 3 - SPX 1 min: from 1129.24, i-ii-[1] or wave i down:

The main count on this chart shows a subdividing wave iii down and puts us currently in wave [2] of iii (I've moved the (W) and (X) labels since yesterday).  As I said in yesterday's update, wave [2] of iii may have completed at the 1065.21 high, but I think its best to assume more upside to a higher retracement level, say, 50% for this. This count is invalidated if we take out the wave ii high at 1100.14.

The alternate count shown has us only having completed wave i down, so puts us now in wave ii up. We'd be retracing the entire decline from 1129.24, so the upside on this count could be substantial.

With both these counts, there remains an issue as to whether the low of wave [1] or i occurred on 25 or 27 August. Again, it doesn't affect the invalidation points. It simply means that we may have more time to use up than we have so far in wave [2] or ii if the low was on 27 August.

If the wave [1] or i low was on 27 August, here's what we might be seeing:

Chart 4: SPX 1 min - from the 1100.14 high:

I've labelled the move up from the 27 August low as  an (A)-(B)-(C) correction, but it could be an (W)-(X)-(Y). If its the latter, we'd need a 3 wave rally for wave (Y) rather than the 5 waves that would be needed for a wave (C). 

So, on the main count shown in chart 1 above, if we take out the high at 1065.21 before a 5 wave move down, preferably to new lows below the wave [3] low, that will be invalidated.  I would then be looking to the levels  identified in previous end of day updates:

1) if we're in wave iv up, it can't end above the low at 1069.49 if it does, then that would rule out the possibility shown in chart 2 above that we were rallying in wave iv;

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

3) 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 1, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on chart 3),  or one of the more bullish counts shown in the update posted earlier (see here).

4) 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 in the update on the bullish counts 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.