Monday, 1 November 2010

20:15 GMT - SPX End of Day Update

With the high at 1196.14 remaining intact, the possibility that we've seen a top to the rally from the August low at that high  is still on the table. However, the bullish count still allows for the possibility of a further high  in order to complete that rally.

The charts below show a close up of recent action. For the bigger picture please see the 60 min counts page where the bearish count is shown on the charts of Options 1 and 2 and the bullish count is shown on the chart of Option 3.

Bearish count:

Chart 1: SPX 1 min - bearish count: 

The main count shown in Friday's end of day update was invalidated today, leaving the i-ii count that I had shown as an alternate. The invalidation point for this count is 1196.14, but realistically, I don't want to see the high at 1195.81 get taken out at this stage.  

For this count to have any prospect, we must take out the low at 1171.70. However, as explained in the intra day updates, taking out that low doesn't guarantee that we've topped, since the bullish count can accommodate a drop below that low.

As you can see, I've labelled the decline from today's high as the early stages of wave iii down. I think it now makes sense that the initial decline to 1186.41 was the first complete 5 waves down, rather than as I had labelled it in my last post. This is simply because the decline after that low is now probably more like a 3rd wave than the 5th wave that I was expecting when looked at in the context of the move down from the 1195.81 high. 

If the labelling I've shown is correct, I'll want to see the retracement for wave (4) stay below the low of wave (1) at 1186.42. If we break above that low on this assumed wave (4) retracement, then the labelling will need to be reviewed.  One possibility will be that we're in a (1)-(2)-1-2 down from the 1195.81 high, as shown as an alternate in the chart above, in which case, we have to stay below the high labelled (2) at 1189.11.

Taking out that high would certainly increase the odds of more upside in the bullish count.

Here's the close up chart I posted earlier, updated with the latest labelling - the bear count is the main labelling:

Chart 2: SPX 1 min close up from the 1195.81 high:

Turning to the bullish count, as mentioned, its possible that today's high marked a top for that count too, as shown as the alternative on Chart 3 below. In that case, the bear count for the decline from today's high shown on Chart 2 above would apply.

However, it remains possible that we are still only in wave (iv) of the rally from the August low on the bullish count. This is the main labelling on Chart 3 below.
Bullish count:

Chart 3: SPX 1 min - bullish count:

So, on the main labelling, I've assumed that today's early push out of the triangle was wave v of (iii) and that we're now in wave (iv). If this is right, potential retracement levels for wave (iv) would be 1159 (23.6%) and 1136 (38.2%). Theoretically, this wave (iv) could go all the way down to just above the wave (i) high at 1065.21 without invalidating the count. In reality, I'd consider the count unlikely, even though it wouldn't be invalidated, long before that.

If we take out the high at 1195.81 now, I'd have to start thinking that wave (iv) may already have bottomed.

The alternate labelling on Chart 2 above shows how I'm seeing wave (iv) at the moment.

So, on the counts as I've labelled them, the levels I'm watching are 1195.81 (above this level I'd consider that the balance shifts in favour of the bullish count, though the bear count won't actually be invalidated unless we take out 1196.14), 1186.42 (above that rules out the main bear labelling of the decline from 1195.81 shown on Chart 1 above),  1189.11 (above that rules out the alternate bear labelling shown on Chart 1 above) and 1171.70 (below which we must drop if we've seen a top at 1196.14, though it doesn't rule out the bullish count).