Monday, 25 October 2010

21:15 BST - SPX End of Day Update

So, the bearish count last shown in Chart 1 of Friday's end of day update was eliminated today, leaving the ending diagonal and bullish counts on the table.

The ending diagonal may be complete at today's high, with today's push up being the (C) wave of the final leg of the diagonal anticipated in Chart 2 in Friday's end of day update.

Here's the count for the completed ending diagonal (the bigger picture is shown on Chart 2 on the 60 min counts page):

Bearish count:

Chart 1: SPX 1 min - bearish count, complete ending diagonal:

You can see that I've labelled 5 waves down from today's high, with the sideways action seen after that initial decline as a 2nd wave. Obviously, today's high at 1196.14 cannot be taken out if this count is playing out. I'd probably start getting concerned about this count if we now take out the high I've labelled as wave (2) at 1191.44.

Taking out the low at 1171.17 must be the first objective if this count is correct, but I'd then want to see a quick move below 1159.71 follow.

If we take out the high at 1196.14, then this count will be invalidated. However, as I've shown previously, its possible we'd still be in an ending diagonal, with today's high having been only the 3rd wave, not the 5th wave. Here's how that would look:

Moderately bullish, continuing ending diagonal count:

Chart 2: SPX 1 min - continuing ending diagonal:

As you can see, I'd put us still in wave iv of the ending diagonal. It may be that the late low at 1185.13 may mark the end of wave iv. If we take out the wave [B] high at this stage, that's probably what I'll be thinking.

Wherever wave iv ends, with wave iii being 36.43 points, for the diagonal to remain a valid count, wave v would have to be shorter than that, so once we can say that wave iv has ended, we can calculate a maximum target for wave v, assuming that this diagonal is playing out.

If there's still more downside to come in wave iv, it  will have to stay above the dotted blue line for the diagonal to remain valid.

Bullish Count:

Chart 3: SPX 1min - bullish count:

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

On this count, I've labelled today's high as wave 3 of (3) within wave (v) (see Chart 3 on the 60 min counts page for the larger picture).

If we take out the high at 1183.93 before we make a new rally high, I'd really start to question this count. However, it may be that we're still in wave (2) as an expanded or running flat if that happens. That possibility would only be invalidated if we took out the low at 1159.71.

So, for the moment, the levels I'm watching are 1196.14 (to keep the bearish count on the table, but I'd be concerned about the bearish count if we take out 1191.44 at this stage), the blue dotted line on  Chart 2 above (taking that out before a new rally high would invalidate the continuing ending diagonal count on that chart) and 1159.71 (taking this out will rule out the bullish count as I've labelled it).