Wednesday, 25 August 2010

9:41 BST - SPX Update: Technicals on the daily to 5 min charts

Here's a quick run through the non-elliott wave analysis from the daily to the 5 min timeframes:

SPX Daily:

You can see from the notes on the chart that the indicators look pretty bearish, so not much here to support a serious bullish move at the moment.

We're at an interesting place with regard to the pitchforks. That large green upward fork is at risk. Yesterday's decline took price right down to its lower line, but that's where we bounced. You might recall my 60 min chart from early in yesterday's session that showed price void right down to 1010 and the market was right into that void. Clearly however, traders looking at pitchforks would have been looking at support from the forks, despite the lack of support from prior price congestion so this may have been one reason why the market stopped falling where it did.

SPX 60 min:

Again, you can see from the notes on the chart that the indicators pick up on the bearish theme of the daily chart.

The rebound from yesterday's early low also occurred at an interesting place on this timeframe as far as the forks are concerned - right at the intersection of the lower line of the blue fork and the median line of the red fork.

The rebound took price back to the median line of the blue fork, but that is also the prior pivot low that should have provided support, but that was broken yesterday (lower dotted green line) and price seems to have found resistance there.

In a downtrend, the type of sideways move we saw for most of yesterday builds an area that should provide resistance in the future, provided the downtrend continues (in an uptrend areas of resistance get broken easily). So, provided we break down below the congestion area created yesterday, this congestion should become future resistance to any countertrend rally.  Of course, if we break above it instead of below it, then it should become support and that would potentially be at least short term bullish.

SPX 15 min:

Moving down to this timeframe, while the indicators paint a bearish picture in line with the higher timeframes, it looks  to me like there is potential here for the indicators to diverge bullishly against the next low in price. I've noted this in my comments on the chart. 

This would be in line with the wave counts which suggest that the next low should be a 5th wave of some degree (and what that would mean would differ depending on which wave count is playing out - I explained some of the possibilities in yesterday's end of day update which you can see here) and its on 5th waves that divergences tend to occur.

You can see that I've drawn in a new downward blue fork using yesterday's low and the late afternoon high. If we're going to see a 5th wave down from 1081.58 then we might see price try to get to the median line of this fork and possibly fail, which would be near term bullish. If the 5th wave extends then we could see this fork lead price down to the median line of the larger red fork. If we break up out of this blue fork instead of down and the breakout is not quickly reversed, that could be a bullish sign, so should be considered as at least a warning of more upside to come.

SPX 5 min:

The potential for the indicators to diverge bullishly against price on the next price low is probably more obvious on this timeframe. If the 5th wave that's expected extends, then it may not happen, but I think the possibility is there and is worth watching for.

So, the expectation is for a low below 1046.68 at some point today and before we move above 1069.43 so that we get 5 waves down from 1081.58. This would certianly make the counts look complete even on the three bullish counts I have which you can see summarised here.

If we don't get the new low and instead take out the 1069.43 low (meaning we only had what on the face of it looks like 3 waves down from 1069.43), then something else is happening. 

One possibility is the expanded flat for an on-going wave ii that I've shown as an alternate count over last few days and is shown as the alternate count on the first chart in yesterday's end of day update. If we don't get the expected 5th wave down below 1046.68, the decline from 1100.14 to 1046.68 could count reasonably well as a double zig zag for wave [B]. If that is playing out, we'd expect to see a [C] wave rally to above 1100.14 in wave [C]. We'd have to stay below 1129.24 for this count to remain valid.

Another possibility is the leading diagonal for wave (i) down shown on the third chart in yesterday's end of day update. If that did complete as I've labelled it on that chart, at the low of 1046.68, then we would expect to see a substantial rally in wave (ii) retracing the decline from 1129.24.

So, whether we get the 5th wave that's expected or not, the balance of probabilities suggests that we should see some upside  fairly soon - to what extent will depend on the wave count that is playing out, as explained in yesterday's end of day update. The count shown on the first chart in that update allows for only a very moderate bounce and it could be invalidated quickly on any strength, leaving the other counts shown in the end of day update and in the post on the bullish possibilities to battle it out.