Tuesday, 7 September 2010

21:12 BST - SPX End of day update

For both bullish and bearish counts, I was looking for 5 waves up from the 31 August low at 1040.88. 

If you look at the update I posted on Friday  on the bullish counts (you can read it by clicking here), you'll see that for the count shown in chart 1 in that update, it would be wave iii of (i) of [c] in a zig zag. For the count shown in charts 2, it would be wave (i) of [iii] up and for the count shown in chart 3, it would be wave [i] of C up. I did a further update on the bullish counts earlier today, which you can read here.

On the bearish counts, 5 waves up from 1040.88 would complete a 2nd wave correction in an overall downtrend.

For the bigger picture on those bullish counts and the bearish counts set out below, please refer to the 60 min counts page.

Today's action may have left a truncated 5th wave in the 5 waves up I was looking for from 1040.88, or we may still be in the 4th wave of that 5 wave move. 

Here is the position shown on the main bearish count  that has us in a [i]-[ii]-i-ii down from 1129.24, with wave ii as a zig zag (it also applies to the other bearish count where wave ii is an expanded flat, as well as to the bullish counts):

Chart 1: SPX 1 min -  i-ii down from the 1129.24 high:

I've labelled 5 waves up from 1040.88 as complete at 1104.58, but, as I've said above,  its perfectly possible that we just finished the 4th wave of the final 5 up with today's move. That possibility would be eliminated on the bullish and bearish counts if we take out the high at 1087.11, which is the high labelled 1 of (5) in the above chart.

Looking at the bearish count shown on the above chart,  we're retracing the decline from 1129.24.  So far, we've retraced just over 70.7% of that decline. If we only completed wave 4 of (5) of [C] at today's low, for wave 5 and (5) back up, the 78.6% retracement level at about 1110 may be a target.

If we did top at 1104.58 and completed  the first wave down in wave iii with today's early decline, although I can label a 2nd wave retracement complete at 1097.41, its possible we still have more upside in that 2nd wave (its 38.2% retracement is shallow). However, if we start seeing clear impulsive downside action that isn't immediately reversed, the risk of this will be reduced substantially.

Here's a closer look, zooming in on the move from the 1105.10 high at 1105.10:

Chart 2: SPX 1 min - from the 1105.10 high:

The initial decline today certainly looks impulsive but we really need to take out the 1187.11 high to eliminate the possibility that we're still just in wave 4 of (5) of [C]. Until then, the risk of further upside remains.

Even if that level is taken out, since the bullish counts would be in 2nd wave downward retracements if we have completed 5 waves up from 1040.88, the risk of further upside will remain at least until we take out 1040.88. After that level, the bullish counts are still technically valid (unless we take out 1010.91), but would probably be severely damaged.

Obviously, there's no way to tell whether we're in the bullish or bearish counts, so without taking out the levels mentioned above, we can't say if this current decline means the start of a big down move or if its just a pause in a longer term uptrend. We can only continue to identify the levels that the developing elliott wave counts provide which increase or decrease the odds in favour of one count or another.

At the moment, with the counts I'm following, those levels to watch are now as follows:

1) for both remaining bearish counts, we have to stay below the high at 1129.24;

2) if we take out 1129.24, that will eliminate those two remaining bearish counts for the move down from that high and will focus attention on the bullish counts. The first bullish count shown in the update posted today  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;

3) taking out 1087.11 before we make a new high will eliminate the possibility that we are still in a 4th wave correction before a further move up to complete the 5 waves up needed on all counts from the 1040.88 low;

4) taking out 1065.21 will reduce the odds that the bullish count shown on chart 1 in the update I posted on Friday is playing out (see the update I posted today);

5) taking out 1039.70  will eliminate the bullish counts as labelled. Until we take out 1010.91, however, there would still be a possibility that they are in continuing downward corrections, so didn't start their respective bullish moves at the 1040.88/1039.70 lows, but it might then be considered low probability and my focus would switch to the bearish counts.