Monday, 13 September 2010

21:20 BST - SPX End of Day Update

The ending diagonals I was watching on Friday were invalidated with today's gap up, but a new one emerged, along with the possibility that we completed a double zig zag from 1039.70 at today's high or that we completed 5 waves up from that low at today's high. 

A diagonal from 1040.88 or a double zig zag up from 1039.70 would be wave [C] of ii on the [i]-[ii]-i-ii bearish count. Five waves up from 1039.70  would be all or part of wave [c] of a zig zag on the count that has us in minor 2 up. A diagonal or 5 waves up would represent the next impulse up in larger rallies on the more bullish counts under Option 4.

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

The action since the last posts today showing the potential wave counts hasn't done anything yet to confirm which may be playing out, so I'll just show the charts with updated labels to take account of the action since the earlier posts:

Chart 1: SPX 1 min - ending diagonal from 1040.88 or double zig zag from 1039.70:

This shows the whole of the move up from 1040.88 as an ending diagonal in progress for wave [C] of ii or a complete double zig zag up from 1039.70 to complete wave ii.

For the ending diagonal, if we completed wave (3) today, wave (4) needs to stay above the dotted orange line (otherwise the lines will not be converging), assuming we didn't complete it today.

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

If we completed wave ii at today's high with the double zig zag that I've labelled, we really need to see clear impulsive declines. As yet, we haven't seen that, so this possibility may be low odds at this stage. However, if it can stay below today's high in 3 waves (it looks like a double zig zag up from 1116.14 at the moment) and then start to decline impulsively, that would boost confidence in it.

Here's a close up showing the count from the 1101.53 low:

Chart 2: SPX 1 min - ending diagonal from 1040.88 or double zig zag from 1039.70 close up:

As you can see, the count could go either way at the moment. The move down from today's high looks better to me as a zig zag, but I can certainly squeeze 5 waves out of it for wave 1 down if did  complete wave ii today.

So far, the move up from 1116.14 looks like a double zig zag, but it could easily develop into an impulsive move. If that happens, it may be that we bottomed in wave (4) at 1116.14 and have started wave (5) up to complete the ending diagonal.

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

This labelling applies to the count that has us in minor 2 up from 1010.91 or the more bullish counts (under Option 4 - see the 60 min counts page).

It could be complete at today's high as you can see from the alternative labels, but price has done nothing yet to confirm it. So, for the moment, further upside to complete this 5 waves has to be assumed. If we were to take out 1110.53 before making a new high, that would suggest that we'd completed 5 waves up from 1039.70 today.

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

1) for the [i]-[ii]-i-ii count, we need to stay below 1129.24. If we take that out, this count is invalidated. That means that if we are in the ending diagonal shown in chart 1 above, we need to have completed wave (3) at today's high and be in wave (4) now. Once complete we need to see a very short wave (5). Wave (4) must stay above the orange dotted line which runs through about 1105;

2) if we completed wave ii today, we need to see price action to confirm: we need to stay below today's high obviously, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we haven't seen this. Taking out 1101.53 in an impulsive move might help to increase confidence in this possibility;

3) if we take out 1129.24, that will focus attention on the bullish counts. The first bullish count (which has us in minor 2 up) shown in the update posted on Thursday  is bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it today or be on the verge of doing so, or the move up from 1039.70 could just be part of the [c] wave of 2. 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 more bullish counts (although they remain potentially in play in some other form until 1010.91 is taken out).