Thursday, 7 October 2010

21:14 BST - SPX End of Day Update

On the 3 Options set out on the 60 min counts page, the search  continues for the end of 5 waves up from the August low  to mark the end of minor 2 (or (i) of [c] of 2) on Option 1, the end of wave X on Option 2 or the end of wave [i] of C (or (i) of [iii] of A) on Option 3.

We made another new high for the rally from the August low, but the question remains whether that new high was the end of the rally from the August low or whether there is still more upside to come.

The problem for the immediately bearish case is that we haven't yet seen a clear 5 wave impulsive decline taking out any significant levels so the risk of further upside continues.

You can see the bigger picture into which the following zoomed in charts fit by going to the 60 min counts page where you'll find the 3 Options I'm following for the move down from the April 2010 high.

The first chart is labelled as if Option 1 is playing out and assumes that we topped at 1163.87:

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

I don't especially like this count, but its valid and with all other possibilities for the immediately bearish case now eliminated, it'll have to do!

As I said above, the problem with the bearish case is that for some time, the only 5 wave declines we've seen have been quickly overlapped by what, until then, was assumed to be a 4th wave. This has meant that we're left having to count nested ones and twos down and these, in turn, have also failed. 

We saw the same situation today, and this has left the bear case with only the count shown above.

It may not be very attractive, but until we take out the high at  1163.87 it is feasible. The odds for this count would greatly improve if we take out the low at 1151.41.

Turning to the near term bullish count, this second chart is labelled as if Option 3 is playing out and assumes we still have more upside to come:

Chart 2: SPX 1 min - 5 waves up from August low still in progress:

For this count we have to stay above 1151.41 for it to remain valid. If this count is playing out, then a possible target area for the end of wave (v) would be around the 1173 level which is about the 78.6% retracement of the decline from 1219.80 and also the next higher Gann price level based on the 1039.70 low.

Don't forget the other possible way to count this which I mentioned in the intra day updates - today's high was only wave i of (v) and the decline we saw from there was wave ii. This would mean a potentially substantial rally coming in wave iii. At the moment, I think this count would be low probability since today's decline only retraced 38.2% of the rally from 1131.87, which is perhaps rather shallow for a 2nd wave, but also because it might make wave (v) somewhat out of proportion to wave (i) in the rally from the August low. However, we'll have to see how price action develops.

So, the levels I'm watching for now are 1163.87 and 1151.41.