Friday, 22 October 2010

21:13 BST - SPX End of day Update

You can see the bigger picture for each of the following counts on the charts of Options 1, 2 and 3, respectively on the 60 min counts page.

Bearish count:

Chart 1: SPX 1 min - bearish count:

This assumes a top to the rally from the August low at the high of 1189.43.

With the sidways action today, its unclear whether wave (2) has ended, as labelled, or whether its still in progress, with another up leg to come. 

Taking out 1183.93 will invalidate the little i-ii that I've labelled. Given the sideways action today, I think its probably more likely that we'll see more upside in wave (2), but until that high at 1183.93 is taken out, I'll leave the labelling as it is.

If there is more upside, it has to stay below 1189.43 for the count to remain valid.

If that high is taken out, I'll be looking to the following count as likely playing out.

Moderately bullish ending diagonal count:

Chart 2: SPX 1 min - ending diagonal:

This count puts us in an ending diagonal wave v in the rally from the August low.

As mentioned in the update posted last night, if we're in wave [5] of this diagonal, it has to stay below 1200.89 to remain valid and it has to take out the high labelled wave [3] at 1189.43.

If we exceed 1200.89, it could either mean that we're only in wave [3] of the diagonal or that the more bullish count below is playing out.

If we're still in wave [3] of the diagonal to a new high for the rally from the August low, then once its complete, wave [4] will have to stay above the dotted blue line for the diagonal to remain valid.

If we take out the low at 1171.17 before making a new high at this stage, I'd start to question the diagonal. However, it won't be ruled out until we take out 1159.71 or the dotted blue line.

Bullish Count:

Chart 3: SPX 1min - bullish count:

This has us in a subdividing wave (v) in the rally from the August low.

Its not clear whether wave 2 of (3) is complete today or if it has more downside to go before we see more upside. More downside would make sense given that wave 2 is, so far, a very shallow retracement. If there is more downside to come, it needs to stay above 1171.17 for the labelled count to remain valid. 

If we take out that low without new highs, we may still be in wave (2), so the overall count will remain valid. However, we'd then have to stay above 1159.71 in wave (2) to keep that count alive.

At the moment, I'm tending to prefer the bearish count given the technical picture outlined in my earlier post. However, if we take out the high at 1189.43 and invalidate that count, then my preferred count will be the ending diagonal, again, given the current technical picture and also because its probably more likely to result in a wave v that is more in proportion to wave i in the rally from the August low than the bullish count shown in Chart 3.

So, for the moment, the levels I'm watching are 1189.43 (to keep the bearish count on the table), 1171.17 (taking this out might be a warning that the ending diagonal or the bullish counts may not be playing out, but won't invalidate them) and 1159.71 (taking this out will rule out the ending diagonal labelled and the bullish count). I'm also watching the dotted blue line on Chart 2 above, since a drop below that will rule out the diagonal count shown.

Have a great weekend!