Friday, 17 September 2010

21:25 BST - SPX End of Day Update

With the high above 1129.24 today, the [i]-[ii]-i-ii count was finally invalidated. That leaves the following counts from the 60 min counts page intact:

1) the [i]-[ii] and 1-2 counts on the potentially very bearish side - currently Options 2 and 3 on the 60 min counts page

As mentioned over the last few weeks, in respect of the [i]-[ii] count (currently Option 2 on the 60 min counts page), where wave [i] was on 25 May, I was starting to dislike the count because of the time taken for wave [ii] (now that the [i]-[ii]-i-ii is off the table). On that basis alone, I'm going to drop that count in favour of the 1-2 shown currently as Option 3 on the 60 min counts page.

Here's the updated 60 min chart for that count:

You can see I've labelled a complete wave 2 at today's high, though noted that the rally from the August low could just be (i) of [c] of 2. We'll just have to wait and see how we decline, assuming we've completed 5 waves up (or an ending diagonal) from the August low.

Going forward, I'll be referring to this potentially very bearish count as Option 1.

2) a W-X down from the 1219.80 high, which has a Y wave down to come on the moderately bearish side (currently Option 5 on the 60 min counts page).

Here's the updated 60 min chart for this count:

You can see that here, I've adopted the alternate labelling  shown on the chart on the 60 min counts page, that makes the latest high (assuming we've topped) wave X  in the decline from 1219.80. 

I've also related the labelling to long term count 5 (see the long term counts page), which would make the move down from 1219.80 intermediate wave (2). You can see the count for intermediate wave (1) up from the March low on the "Impulse from March 2009" page. The chart on that page shows a target area for wave (2) around the 875-950 level.

Going forward, I'l be referring to this moderately bearish count as Option 2.

Since the count currently referred to as Option 4 on the 60 min counts page has pretty much the same effect as this one, but looks less attractive in my view, I'll be leaving that aside from now and just using this one.

3) for the bullish side, a complete (X) wave low in July followed by a leading diagonal wave A (or [i] of A) up followed by wave B (or [ii] of A) and, from the August low, the start of wave C (or wave [iii] of A) (see charts 2 and 3 in the update on the bullish counts posted on 9 August).

Here's the updated 60 min chart:

For this count, from the 9 August update on the bullish counts, I've used only the count shown on chart 3 since I much prefer that to the count shown on chart 2 in that update, so I'll leave that to one side from now. 
You can see that the labelling used relates to long term count 2 on the long term counts page (which has us in primary wave [2] up from the March 2009 low). So, the (Y) and (X) waves labelled would be part of an on-going primary wave [2] up which can't exceed the October 2007 high.

However, as noted on the chart, the count can also be applied to the more bullish long term counts, such as long term count 3 where these waves would be part of (D) of an expanding triangle that must exceed the October 2007 high.

Going forward, I'll be referring to this bullish count as Option 3.

Now, the question is whether or not we've topped in wave 2 (or [i] of (c) of 2) under Option 1 above,  or in wave X under Option 2 above or in wave [i] of C (or (i) of [iii] of A) under option 3 above.

Well, we need either a 5 wave impulse or a diagonal (ending diagonal for Options 1 and 2 above, or leading for Option 3) up from the August low.  Either can be counted in the move up from August and both can potentially be counted as complete at today's high.

Here's the diagonal shown on the bearish count under Option 1 above:

SPX 1 min - diagonal up from August low:

I've labelled it as complete at today's high, but without a significant decline following the assumed end of a diagonal, it gives rise to suspicion that it may not yet be done. I can see that we may have one more up leg to come as shown on this chart:

SPX 1 min - diagonal close up:

I've labelled the count for another leg up as an alternate on the above chart. It shows today's high as wave [A] of y and the move from there as wave [B], potentially a triangle shown by the blue dotted lines.

If we take out 1118.88 to the downside, then that would rule out this alternate since wave y must be a zig zag and so wave [B] can't move below the low of wave [A].

While we are above that level, the risk of further upside is high in my view. That further upside would be limited to 1150.84, assuming the labels are all in the right place, since above that, wave (v) would be longer than wave (iii), which would break the rules. If we were to move above there then we'd most likely be counting the rally as a 5 wave move up from the August low.

Here's the 5 wave impulse up from the August low. Again, I've shown it on the count for Option 1 above (though on this chart I've labelled it as if we will only have completed wave (i) of [c] today rather than the whole of [c]):

SPX 1 min - 5 waves up from August low:

I've labelled the 5 waves complete at today's high, with the decline from there being the start of a potentially significant move down. However, even here, there is scope for more upside if today's high was only wave (1) of [5]. However, with wave v on this labelling falling just short of a 1.236 extension of wave i, and wave iii having been a 2.618 extension, it may seem less probable that wave [5] of v is going to extend.

Additionally, while I can label the initial decline to 1122.43 as a zig zag for wave (2) of [5],  its difficult to label the rest of the move as the start of an impulse up in wave (3) of [5]. So, we'd have to still be in wave (2) of [5] down. That's possible, but we have to stay above the low at 1118.88 on the labelling that I have for this move. If we take out that low, then the labelling suggests we will have completed 5 waves up from the August low at today's high. However, it would be more certain if we take out the low from which wave v started, at 1101.53.

Here's a close up of the count which assumes we have seen a top today:

SPX 1 min - 5 waves up from August low close up:

So, this is what I'm watching:

1) If we topped today, we obviously have to stay below 1131.47;

2) confidence that a top of some sort is in at today's high would be increased if we could see some decisive follow through to the downside. Until then, the risk of further upside or sideways action remains;

3) an impulsive move below 1118.88 would begin to increase confidence that a top is in. However, I would also then be looking for a quick move below 1110.53 (the low I have labelled as the start of wave v) as further evidence of a top;

4) what the nature of that top is will have to be assessed as price action develops since both the bullish and bearish counts call for a decline once a top for the rally from August is in. For the bullish count in Option 3 above we need to stay above 1039.70, but the low at 1010.91 is the critical level for that count. For the bearish and moderately bearish counts, we need to see a swift decline below 1010.91, but taking out 1039.70 would be a good start.

Have a great weekend!