Friday, 5 November 2010

20:57 GMT - SPX End of Day Update

So, we have another candidate for a potential top for the rally from the August low. The problem remains, however, that there are various ways to interpret the action so while its possible to count a complete 5 wave rally from that low, its also possible that further highs need to be put in before it is over.

The context for the following short term charts can be found on the 60 min counts page.

Chart 1 shows the count I'm favouring at the moment. It assumes that we put in a top for the rally from the August low today or that we have one more rally to come, but once a top is in, that will result in significant downside (how much will depend on which Option from the 60 min counts page is playing out). 

The following chart is labelled as if Option 2 on the 60 min counts page is playing out so the top for the rally from the August low will be wave X and the decline that follows would be wave Y in an expanded flat type correction. However, it could equally be applied to Option 3 and what that means on Option 3 would depend on which of the three interpretations of that count is in operation (I've listed them on the 60 min counts page) :

Chart 1: SPX 1 min - bearish count:

Here's the more bullish count which has us looking for only the end of the 3rd wave in the 5 wave rally from the August low. Again, its not clear yet whether the 3rd wave, wave (iii), on the labelling in the chart below, has topped or whether a further rally is required.

The chart is labelled as if Option 3 on the 60 min counts page is playing out:

Chart 2: SPX 1 min - bullish count:

On both of the above charts, provided we stay above 1194.53, there is a risk of a further high being required to complete the wave v or wave (iii) labelled on these charts. Taking that high out without a new high above 1127.08 would void the alternate counts shown on the charts.

For the moment, the odds are favouring that the move from the 1127.08 high is a 4th wave on the alternate count shown on the above charts. However, until the high at 1127.08 gets taken out, its possible that it could be the first and second waves down in a larger decline.

Here's a close up of today's move. Ignore the label degrees - they're just for illustration, so the low labelled as possibly wave (iv) on Chart 3 below would be the 4th waves shown as an alternate count on Charts 1 and 2 above:

Chart 3: SPX 1 min - close up from 1227.08:

So, on the main labelling on Chart 3, there's not much room left to retain its validity if 1227.08 was a top in wave v or wave (iii) on Charts 1 and 2 above. So an immediate drop on Monday would really have to take place. If that doesn't happen, then the alternate that we only completed a 4th wave within wave v or (iii) today will be the count and, as you can see, it appears that we should be into the 3rd wave of the final rally for wave v or (iii) on Charts 1 and 2 above.

So, apart from the 1194.53 high mentioned above, the levels I'll be watching are 1127.80 (if we've topped in wave v on Chart 1 that should remain intact and if we've topped in wave (iii) on Chart 2, it should hold until we see a deeper retracement in wave (iv)) and 1220.40 (that must be taken out if we topped at 1127.08 although of course, it won't exclude all other options).

Have a great weekend!