Wednesday, 27 October 2010

21:15 BST - SPX End of Day Update

Following today's action, I'm left with two counts, one bullish and one bearish. The bearish one assumes that the rally from the august low topped at 1196.14 while the bullish count anticipates more upside before we see a top. You can see where these shorter term charts fit into the bigger picture on the 60 min counts page.

Here's the bearish count:

Chart 1: SPX 1 min - bearish count:

This shows a (1)-(2)-1-2-i-ii down from the 1196.14 high. For this count, as labelled, to remain valid, we need to stay below the high at 1187.11 on this current rally which I have as wave ii of 3 of (3). Its retraced nearly 78.6% of wave i now, so really needs to start dropping.

While that high remains intact, I'm thinking the odds are for more downside.

Its possible that we have 5 waves down from the 1196.14 high as you can see from the labelling on Chart 2 below, in which case, only taking out the 1196.14 high will invalidate the bearish count. However, I think that a move above 1187.11 will make me very cautious about the bearish count.

Here's the bullish count:

Chart 2: SPX 1 min - bullish count:

As mentioned in my last update, wave iv may be complete at today's low as labelled, or wave [C] may be subdividing as shown on Chart 1 above, to achieve a deeper retracement than we've seen so far (23.6%). The 38.2% retracement level is at about 1152, so that needs to be borne in mind.

Again, I think that the 1187.11 level is the level to watch here. If it remains intact, the chances are we'll see more downside. Taking out that level doesn't necessairly mean that wave iv is over, however, since the triangle possibility (see the blue dotted lines) remains and we'd now be in wave [D] of such a triangle. However, 1171.70 would mark the lower limit for wave [E] if a triangle is playing out here.

So, its nice and simple today - I'm watching 1187.11. Above that level, I'll be seriously questioning the bearish count even though it won't be invalidated unless we take out 1196.14. While we remain below 1187.11, I'll favour more downside.