Wednesday, 22 September 2010

21:19 BST - SPX End of Day Update

On the 3 bullish to bearish Options set out in Friday's end of day update, the question remains 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'll show the possible counts on the chart of the 5 wave impulse from the August low, but if the ending diagonal is complete, the count for the move down from 1148.59 shown in chart 1 below will apply to that also. These are close up charts - for a wider view, please see the charts in yesterday's end of day update:

Chart 1: SPX 1 min - top is in at 1148.59 - impulse/correction 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. 

On the bearish counts (Options 1 and 2 in last Friday's end of day update) this move down wave 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 (a) or (w) of [ii]. If its (a), then wave (b) will have to retrace at least 90% of the decline since 3 waves for (a) means a flat is forming. If its (w), then the move up from 1131.58 would be wave (x) and can take any corrective form and doesn't have to retrace any particular amount.

For the bearish count, or if we're forming 5 waves for (a) of [ii] on the bullish count, the labelling on chart 1 will have to be revised if we take out the high at 1144.38 in this assumed wave 2 of (3) retracement (and, of course, it'll be invalidated altogether above 1148.59). Although I've labelled wave 2 of (3) as complete, it may not be since its quite shallow for a second wave, so further upside is possible as long as it stays below that wave (2) high.

However, once complete, if we're seeing an impulse wave down from 1148.59, then I want to see a swift move to below 1131.47 and then below the wave [4] low at 1119.77.

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

Here, I'm assuming that the high at 1148.59 was wave X in an expanded type correction for wave (4) of [5], so there is still one more high to come before the rally from the August low is complete. 

This count will be invalidated if we take out the high of wave (1) of [5] at 1131.47 without making 5 waves up from wave (4) and/or a new high first.

So, after today's action, the levels I'm watching are 1148.59, 1144.38, 1131.47, then 1119.77.