Friday, 1 October 2010

12:53 BST - SPX : Update on the short term bullish count

As I mentioned in yesterday's end of day update, I'm not that keen on the bullish count shown in charts 3 and 4 in that update, consisting as it does of a number of ones and twos to the upside. Even if the alternate labelling is applied, with wave (iv) at 1132.09, it still doesn't look great in my view. So, I'm looking at this as a possibility, where the ending diagonal I've been showing on the bearish count (see charts 1 and 2 in that update) was actually the end of wave (iii), not wave (v) up from the August low. 

Here's a 60 min chart for a larger view (labelled as if Option 3 from the 60 min counts page is playing out):

SPX 60 min - waves (iv) and (v) up still in progress:

As I mentioned in one of the intra day updates yesterday, the initial move down from yesterday's high to 1148.82 looked very much like a double zig zag rather than 5 waves for an impulse, so it wouldn't surprise me to find that it was just part of the wave (iv) correction shown on the above chart. I'd actually count the move from the high to the 3 wave low down to 1151.37 as a zig zag, then a running triangle x wave ending at 1151.75, followed by another zig zag for wave y.

Here's a closer look from the wave iii of (iii) high at 1127.36 (though you can't really see the detail of wave (iv) on this chart):

SPX 1 min - waves (iv) and (v) up still in progress, close up:

If this count is correct, then, by reference to wave (i), if wave (iv) bottomed at 1136.08, wave (v) would be equal at 1161. It would be a 1.236 extension at 1167, 1.382 x (i) at 1171 and 1.618 x (i) at 1177. If wave (iv) hasn't yet ended, then these potential targets will need adjustment.

The counts shown on  charts 3 and 4 in yesterday's end of day update have invalidation points at 1132.09 (for the alternate with wave (iv) at 1132.09) and 1122.79 (for the main count). The count above would survive a drop below those levels and isn't tecnichally invalidated unless we drop below 1065.21.

Remember that the bearish count shown in charts 1 and 2 of that end of day update carries the risk of a further high in a continuing wave v of the diagonal as long as we remain above 1132.09. That new high would, however, be limited to 1159.22 since wave v has to remain shorter than wave iii. If we rally and exceed that level then the count shown in this post will become my favoured short term bullish count.

To start to disregard this count, if we've seen waves [1] and [2] down from the low (as shown in charts 1 and 2 in the end of day update, with [2] possibly still needing more upside as described in that update)  I'd want to see a significant decline in waves [3], [4] and [5], preferably taking out the pivot low at 1091.15. Even though that wouldn't technically invalidate counting wave (iv) in progress, it would start to make it look unlikely in my view.