Wednesday, 15 September 2010

21:19 BST - SPX End of Day Update

There was no new high for the rally from the August lows, so on the bearish [i]-[ii]-i-ii count it remains possible that wave ii completed at yesterday's high with wave [C] of wave ii as an ending diagonal which started at 1040.88. 

However, we didn't take out 1110.27, so the possibility of a further high above 1127.36 remains on the near term bullish count (the zig zag from 1010.91 - Option 3) and the more bullish counts (the bullish alternatives under Option 4)

For the bigger picture on the bullish and the bearish counts  and the Options referred to, please go to the 60 min counts page.

Today's initial decline appeared to be a good start for the immediately bearish case. However, so far, there's been no downside follow through so  there remains doubt that an immediately bearish count is playing out.

Here are the charts:

Chart 1: SPX 1 min - ending diagonal from 1040.88:

This shows the whole of the move up from 1040.88 as an ending diagonal for wave [C] of ii. Wave (4) didn't overlap wave (1), but the EWP book suggests that that can happen and since it otherwise looks like a diagonal, with the overlapping waves, it would seem to be OK to label it as such.

I've retained the labelling of a complete diagonal, but, given that we haven't declined significantly its possible that the high at 1127.36 was only wave (3) and that we saw wave (4) today. I've shown this as an alternative on the above chart. This would mean a further high to come, above 1127.36 to complete it.  If that's the case, wave (5) has to stay below 1129.24, otherwise the [i]-[ii]-i-ii count is invalidated.

On the bullish counts, this diagonal would be a leading diagonal for a wave (i) or [i] up.

Here's a closer look:

Chart 2: SPX 1 min - ending diagonal from 1040.88:

As you can see, I've labelled a series of ones and twos down if we assume a top at 1127.63. The invalidation point for this count is 1126.57, although a 1-2 down isn't entirely ruled out until we take out the high at 1127.36 (we'd be looking at an expanded flat for wave 2).

However, if we did top at 1127.36, we really need to start seeing more decisive downward moves without the deep and immediate retracements. It may be we're on the verge of seeing that if these ones and twos start to play out as they should. Until then, the jury's out on an immediately bearish case.

For the alternate shown, we have to take out the high at 1127.63, since wave (5) has to move beyond the end of wave (3) in a diagonal. However, on this bearish [i]-[ii]-i-ii count, we also have to stay below 1129.24. 

If there is more upside to come and we take out the high at 1129.24, then that will invalidate the overall [i]-[ii]-i-ii count. As explained on the 60 min counts page, that would still leave a [i]-[ii] count (so we'd be in wave [ii], not wave ii). However, taking out that high would, in my view, make the count for a zig zag from 1010.91 the best bearish option.

Here's the count for 5 waves up from 1039.70 which would be all or part of wave [c] of the zig zag up from 1010.91 under Option 3 (and it would also apply to the bullish alternate counts shown under Option 4 on the 60 min counts page):

Chart 3: SPX 1 min - 5 waves up from 1039.70:

For the moment this count for 5 waves up from the August low could be complete at 1127.36. However, the alternative labelling suggesting that we only completed wave [3] of v at the 1127.36 high remains valid since we haven't dropped  below 1110.27 (the wave [1] of v high).

If that alternate is playing out, I'd count the move up from today's low as a wave (1) leading diagonal and we'd now be in wave (3) (you can see the leading diagonal on chart 2 above where its labelled as a wave A).

So, after today's action, here's what I'm watching:

1) for the [i]-[ii]-i-ii count, we need to stay below 1127.36 if wave ii completed at that high. If not, we have to stay below 1129.24. If we take that out, this count is invalidated;

2) if we completed wave ii (shown in charts 1 and 2 above) or minor wave 2 (shown in chart 3 above) at the high of 1127.36, we need to see price action to confirm: we need to stay below that high, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we still haven't seen this. Taking out 1101.53 in an impulsive move might help to increase confidence that a top of some sort has been seen, but, in my view, it would have to be followed swiftly by a move below 1091.15;

3) if we take out 1129.24, that will focus attention on the zig zag from 1010.91 count and the bullish counts under Option 4. That zig zag would be minor 2 up, as shown in the update posted last Thursday,  and its bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it at the 1127.36 high or be on the verge of doing so, or the move up from 1039.70 could just be wave (i) of [c]  of 2;

4) if we take out 1039.70 on the next move down, that would confirm the completion of wave 2 as a zig zag. It would also eliminate the two bullish counts under Option 4 (although they remain potentially in play in some other form until 1010.91 is taken out).