Friday, 1 October 2010

21:16 BST - SPX End of Day Update

On the 3 Options set out on the 60 min counts page, I'm  looking 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.

Please refer to the 60 counts page for context.

So far, the high at 1157.16 has held as a potential top based on the ending diagonal count.

Here it is on the bigger picture of that count for the move up from the August low (labelled as if Option 1 on the 60 min counts page is playing out):

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

Here's a closer look: 

Chart 2: SPX 1 min - 5 waves up from the August low close up:

The labelling of the move from the 1157.16 high as the initial stages of minor wave 3 down remains tentative at the moment since we haven't taken out any significant levels to the downside as yet.

As I said in yesterday's end of day update, I want to now see an impulsive move down that takes out the low at 1132.09 and the low at 1122.79. Taking out the first level will preclude a further high to come in wave v of the diagonal that I've labelled on the above charts. Taking out the second level could start to make the bullish case look doubtful (though it won't be invalidated).

It may be encouraging for this count that since the drop from the high, we've moved in what looks like a corrective, mostly sideways manner. However, at the same time, until we see something clearly impulsive to the downside, we can't be sure that a bearish count is playing out. That's because the drop and sideways action is consistent with a continuing wave v within this diagonal or with the wave (iv) correction shown on the short term bullish count below.

Obviously, for this count to remain valid, we need to stay below the high at 1157.16.

Turning to the more bullish count, you can see the bigger picture of the one that I'm now following on the first chart in the pre-market post (click here).  Here's the close up (the labelling on this chart relates to Option 3 on the 60 min counts page): 

Chart 3: SPX 1 min - 5 waves up from August still in progress, close up:

As explained in the update I posted earlier (see here) I have to assume that we're still in wave (iv) and that it did not end at 1136.08 as originally labelled.

As you can see, I've labelled a potential zig zag, but the alternative is a triangle as shown by the red dotted lines. The latter would entail less downside to complete wave (iv) than the former (it can't take out 1136.08 in the e wave if its a triangle).

The problem with this bullish count is that its not invalidated unless we take out 1065.21 in an assumed wave (iv). However, as explained in the pre-market post of this count, if I see a strong impulsive decline that takes out 1091.15, I'd really start to doubt this count. 

So, the levels I'm watching for some sort of confirmation of an end to the rally from the August low at 1157.16 are 1132.09, 1122.79. To the upside, we have to stay below the current high at 1157.16.

Have a great weekend!