Thursday, 28 October 2010

21:12 BST - SPX End of Day Update

The action today leaves open the question of whether the bullish or the bearish count is playing out, that is, whether we've seen a top to the rally from the August low or whether there's still more upside to come.

Here's how the counts look to me (the bigger picture is on the 60 min counts page where the bearish count is shown on the charts of Options 1 and 2 and the bullish count is shown on the chart of Option 3):

Bearish count:

SPX 1 min - bearish count:

This [1]-[2]-(1)-(2)-1-2 is what I'm going with for the moment. Wave 2 must stay below 1189.53. I've labelled it as complete at 1185.30 which is just over a 61.8% retracement.

However, we now need to see an impulsive move down for some sort of confirmation of this labelling.

If we take out the 1189.53 high that invalidates the count. It would still leave the [1]-[2]-(1)-(2) intact, but that would be invalidated above 1191.44. 

I'd then be left with the count for 5 waves down from 1196.14 that I showed on Chart 2 in yesterday's end of day update. For that count, the high of 1196.14 would be the invalidation point.

Bullish count:

SPX 1 min - bullish count:

On this count, I've labelled it as if we're in wave [E] of the triangle, but as mentioned earlier, we could still be in wave [D], in which case, expect the high at 1189.53 to be taken out.

On this count, the high at 1196.14 shouldn't be exceeded until we complete wave [E] and wave [E] mustn't drop below the low of wave [C] - that's at 1171.70 on this labelling. So, those are the levels to watch on this triangle count.

If the 1171.70 low is taken out, I'll be thinking its likely we'll see more downside in wave iv, possibly down to the 38.2% retracement level at about 1152.

I think at the moment we're in a quite difficult position. 

On the one hand, price action is such that it favours more upside simply because we haven't seen any truly decisive downward movement, plus of course, the trend is still up. This suggests caution is required on the short side.

On the other had, various technicals (see for example the charts I posted earlier today - click here) make a strong case for at least a pullback, suggesting caution on the long side.

The only thing to do is to indentify important levels on whatever count you're following and use them to let the market tell you which way it might be going.

On the counts as I've labelled them, the levels I'm watching now are 1189.53, 1191.44 and 1196.14 on the bear count (above any of these levels I'd consider the risk of more upside to be high) and 1171.70 on the bullish count (below which I'd think the risk of more downside increases).