Thursday, 23 September 2010

21:16 BST - SPX End of Day Update

On the 3 bullish to bearish Options set out in Friday's end of day update, I'm still awaiting confirmation whether or not we've seen the completion of 5 waves or a diagonal up from the August low at yesterday's high of 1148.59  (the diagonal would be an ending or leading diagonal, depending on which of the Options you're looking at). 

Please refer to the 60 min charts in Friday's end of day update for context (the following charts are based on the bearish count shown in Option 1 in that update).

I said in last night's end of day update that one of the levels I was watching was 1131.47. Well, we did take out that high so excluded the possibility that from the high at 1148.59 we were in wave (4) of [5] up - see chart 2 in yesterday's end of day update. However, we didn't take out the next level I was watching at 1119.77 and instead rallied quite steeply. This suggested a different count might be in play which had us in wave [4] of v, with wave [5] up still to come, as shown in my update at 15:32 BST (see here).

So, we remain pretty much where we were yesterday, despite today' late decline, with the choice being either that a top for the rally from 1039.70 is in at 1148.59, or we have one more high to come.

Chart 1: SPX 1 min - top is in at 1148.59 - impulse (on Options 1 and 2)/correction (on Option 3) down has started:

The labelling relates to the bearish count shown in Option 1 in last Friday's end of day update. Although I've labelled it as if we've only completed wave (i) of [c], given how far we've come, I'm more inclined to think that the rally since August is the whole of [c], so the end of minor wave 2.

This count assumes that the rally from the August low has topped and that we are now going to see at least a reasonable decline. You can see a wider view of this count on the third chart in the end of day update from 21 September - click here.

On the bearish counts (Options 1 and 2 in last Friday's end of day update) this move down would be the early stages of wave [1] down. We should eventually be headed down below the August low (on Option 1 I'm assuming that the high at 1148.59 is the end of wave [c], not just part of it, as mentioned above).

On the bullish count (Option 3 in that update) this move down would be wave (a) or (w) of [ii] down and we're only going to retrace a portion of the rally. Wave (a) may take the form of 5 waves, or it may just form 3 waves. Wave (w) would be 3 waves. 

Since we have 3 waves down from 1148.59 to 1131.58, its possible that that low marks the end of wave (w) of [ii] as a zig zag. What followed would be wave (x) as an expanded flat correction. So we'd now be in wave (y) which could form as another zig zag, but it could take any other corrective form, so we'll just have to wait and see (you can see what I mean for this (w)-(x)-(y) wave on chart 2 below). Alternatively, we may still be in the early stages of a 5 wave move for wave (a) of [ii] which would be labelled as shown on the above chart (except that the degrees would be different of course).

For the bearish count, or if we're forming 5 waves for (a) of [ii] on the bullish count, I'll stick with the labelling on chart 1 for the moment. 

Bearing in mind my comments in relation to the bullish count below, I think that the level to watch now on this count is 1110.27 - if that level is taken out then the bullish count is invalidated. 

This (1)-(2)-1-2 will be invalidated if we take out 1144.38, but I think that taking out 1136.77 at this stage would create concern that this count isn't playing out.

Chart 2: SPX 1 min - final leg of the rally still to come: 

You can see the wider view of this count on the chart posted at 15:32 BST (click here). Although the intraday labelling that had us starting wave [5] up has been invalidated, the possibility that we're in wave [4] with wave [5] up to come remains until we take out the high of wave [1] at 1110.27.

Although I've labelled it as if we're still in wave (Y) of [4], it may well be complete at the late afternoon low, in which case, we'd expect a rally starting tomorrow.

As long as we stay above 1110.27, this count suggests a new high above 1148.59. 

So, after today's action, the main levels I'm watching are 1110.27, 1136.77 and 1144.38. Taking out the first one will invalidate the bullish count. Takking out the second one will make the bearish count less likely. Taking out the third will render the bearish count invalid.