Tuesday, 29 June 2010

22:51 BST - SPX Update

A nice decisive move today which eliminated the immediately bullish counts from Options 2 and 5 from yesterday.

Here are the 5 counts. With today's decline eliminating the previous bullish counts, all of the counts shown apply to all of the Options, although what they imply for each Option may vary (for example, a complete 5 waves down on one Option may mean the first wave of an impulse is complete, whereas on another it may mean the end of a wave A in a corrective move).

Option 1 - wave (ii) topped at 1131.23

SPX 6 min chart:

I've got two possibilities on this chart, depending on where wave [4] ended. 

First, if wave [4] was a triangle ending at 1082.60, its possible that today's low marked the end of wave [5] and i of (iii). We would therefore have to expect a bounce in wave ii which could retrace back up to anywhere between 1071 (38.2%) and 1094 (68.2%). It could go higher, but that wouldn't be expected if we are in wave (iii) of [iii] down.

Second, if wave [4] ended at the 1085.95 high, today's low may have been the end of wave (3) of [5] of i. That would mean a brief rally in wave (4) and then a new low in wave (5) to complete wave [5] and i.  Wave (4)  can't end above 1071.81, the wave (1) low on this alternative count. If it did, this alternate would have to be abandoned and the main count would apply.

Option 2 - wave [ii] completed at 1131.23:

SPX 5 min chart:

The potentially near term bullish count that had us still in wave (c) of [ii] up has been eliminated today. This means on this count we are in wave [iii] down.

The count I'm showing on this chart puts us in an extending wave v of (i) of [iii]. Today's low may have marked the end of wave (3) of [3] of v. A wave (4) rally would now be expected but cannot end above 1071.81, the low of wave (1). If it does, then the count will have to be reviewed.

Option 3 - wave [iv] of a leading diagonal completed at 1131.23:

SPX 5 min chart:

I've retained the nested ones and twos on this chart. The main count here is that wave 2 completed at 1082.60 with a truncated  C wave within y. That would likely make today's low wave 3 of (3). If so, we should see a wave 4 rally before new lows are made, but it can't end above 1074.63, the wave 1 low. The wave 4 rally ought to be limited to about the 38.2% area, at about 1053.

 If we we exceed the 1074.63 low, then it may be that the alternative shown on this chart is in play, with today's low being wave (3) of [3]. That would mean a rally in wave (4) should be next. Wave (4) can't end above the wave (1) low at 1085.31, so if the rally gets there, the alternative count is also wrong.

Option 4 - wave [b] of minor Y within a wave [X] completed at 1131.23:

SPX 15 min chart:

I've kept the count from yesterday showing a completed wave [1] at 1074.63, but obviously, wave [2] wasn't playing out as an expanded flat! I'm showing it as a double three and have changed the degrees of the labels.  I have us completing a wave (i) of [c] down. at today's low. This means we should expect a rally in wave (ii) which could take us back up to anywhere between 1071 (38.2%) and 1110 (78.6%). The main resistance area seems to be between 1071 and 1082.

There is a greater upside risk on this count if today's low actually represents the whole of wave [c] of Y and therefore, completes the intermediate wave [X]. 

At today's low, wave [c] would only be a 70.7% extension of wave [a].  Since this appears to be a wave [c] in a second zig zag, it would look better as a zig zag if [c] ended substantially below wave [a], as the count I have suggests it will - currently, it counts as a zig zag but looks like a flat. Its not impossible for [c] to have ended today, so we need to be alert to it since it could result in a substantial rally as we start minor A up.

Option 5 - we completed minor wave X at 1131.23. We are now in minor wave Y down:

SPX - 8 min chart:

The bullish count from yesterday was invalidated with the sell-off today.

As mentioned previously, taking out the low at 1042.17 may just mean we ended  a minor X wave at 1131.23 and that the drop from 1219.80 is forming a double zig zag rather than the single zig zag previously shown.  That's how I am labelling it now.  It would mean more downside near term, but longer term, would be bullish.

I've shown a completed wave [a] of minor Y at today's low. This means we should now rally in wave [b] - the 38.2% to 50% (1072-1083) area might be a good target and its the main area of  resistance. Taking out today's low before a substantial rally would suggest that wave (v) of [a] is extending further and/or that the whole decline may be extending (as suggested by the count shown on the chart of Option 3).

19:36 BST - SPX Update

That drop to the low of the day does look like three waves, suggesting it was part of a corrective move. So, I think we're still in a 4th wave here, despite the new low (which would be the B wave of wave iv in this chart):

SPX 5 min chart:

Remember from the earlier post, the low marked iii could be 3 and this correction could be 4. The levels to watch for invalidation of these counts are 1074.73 (invalidates the wave iv count) and 1074.63 (invalidates the wave 4 count).

16:36 BST - SPX Update

On this count for SPX which I've updated from last night, we're in a 4th wave of some degree following today's sell-off, depending on where wave 2 of (3) ended:

SPX 5 min chart:

If wave 2 ended at 1082.60, then we maybe in wave iv of 3 of (3); if wave 2 ended with a y wave triangle at 1080.52, then we maybe in wave 4 of (3).

Whichever is correct, the invalidation points for the counts are very close together - those wave 1 and i lows which wave 4 or iv, respectively, cannot be breached, otherwise, the count will have to be reviewed.

16:15 BST - VIX Update

The vix is certainly doing what the bears would want it to do, as outlined in my post on 23rd June.

Here's an updated 60 min ichimikou chart showing how the picture has become more bullish (bearish for the market) as those early signs of a trend change have solidified:

Vix 60 min ichimoku:

Pullbacks are fine and to be expected, but in an uptrend, I wouldn't expect pullbacks in the vix to cause the lagging line (green) to drop below the price line. I would also expect the first lines of support for price, namely the turning and standard lines, to provide good support. I wouldn't want to rely on support from the cloud this early on, but  if price drops that low, for me, it will be important to see the lagging line stay above price.

Let's see how it goes.


13:49 BST - ES Update

The overnight drop in the futures still leaves open various interpretations of the elliott wave count. Here's a 5 min chart of ES showing one of them:

ES 5 min chart:

I've changed it from yesterday (which had us looking for a possible 2nd wave bounce), to the more bearish nested ones and twos I showed in the Option 3 chart of SPX last night. This implies a long way down to go.

However, there are less bearish possibilities which could mean that after a quick drop to complete a 5th wave down, which may be all but done in the futures, we see a large retracement up in a 2nd wave - see Option 1 for SPX.

On the more bullish count, see the alternate shown on the above chart, the overnight decline would be wave (C) of [Y] of ii, completing a second zig zag down from the 21 June high. If that is the correct count, the 21 June high is likely to be taken out, even if we are only completing wave [ii] up (as Option 2 on SPX suggests). See Option 5 on SPX for an even more bullish count which implies new highs above 1219.80.

So I'm going to be on the alert for signs that this decline marks the end of the decline from 21 June and may lead to a more significant rally than we have experienced since then. I'll be watching all of those levels identified in last night's SPX update and keeping an eye out in particular for that 1042.17 level which is currently so important to the more bullish counts.

12:48 BST - Dollar Update

The overnight action in the dollar is a bit more encouraging if  you're looking for another rally to take out the high of 7 June.

Here's the 60 min chart:

I've labelled a sub dividing impulse wave up for wave (iii), but its still in its very early stages and there is no way of knowing at the moment whether the rally from the low of 85.215 is a new impulse that will take us above the 7 june high, or whether we are still in a corrective wave down, with this rally being part of the (x) or (b) wave.

At least now we have a couple more levels to watch that should not be taken out at this stage if this is wave (iii) up. 85.789 is the first level to watch since i'm looking for a wave iv of 3 of (3) and wave iv should not take out that high. If the current high is actually wave 5 and (3), then we'd expect now to see a wave (4). That shouldn't take out the high of wave (1), so that level, 85.474, is the next level I'm watching. After that, there's the low at 85.215 which obviously shouldn't be breached at this stage of we are in wave (iii).

For anyone interested, here's the 60 min ichimoku chart:

The picture here, too, has improved overnight, with all the components above the cloud. I still want to see the blue outline of the cloud get above the red outline and for the cloud to start sloping upwards. 

Of course, it could all fall apart, so what I want to see on any pull back in price, is for the lagging line to stay above the price line and for price to find support from the turning line (blue) and/or the standard line (red). A failure on any of these fronts may be an early warning that all is not well with this latest rally.

10:43 BST - DAX Update

On 24 June, the Dax looked like it might have topped in wave [ii] and started a wave [iii] down.

While the bullish possibilities mentioned in that last post still remain, here is a potentially bearish count that could mean that the Dax is about to play catch up with the other major indices:

Dax 15 min chart:

This count puts it in wave [3] of i of [iii] down as of today. I've put in a label for wave (1) of [3], but its not clear that wave (1) is finished.

Here is the count on a 60 min chart with the ichimoku overlaid, showing how the bullish picture as late as 17 June has just turned around now with all the ichimoku components below the cloud. There was a test of the underside of the cloud by the lagging line (turquoise), but, for the time being, it has failed to recapture the cloud and is headed firmly down:

Dax 60 min ichimoku:

You can see that for a time, while price tested the underside of the cloud and the turning line (blue) on 24 June, the lagging line looked like it would find support on top of the cloud (see what it was doing on 21 June - 26 periods back from the price action mentioned). However, it was unable to do so and as prices fell, it finally broke below the cloud too. Yesterday's wave [2] action in price caused a retest by the lagging line of the underside of the cloud, but today's gap down brought about a failure of that retest.

Of course, the level of 5634.64 mentioned in my last post has not been taken out, and until then (and even after that, as mentioned in my last post)  there remains the risk that this decline is just part of a correction in an on-going uptrend that will eventually take prices above the recent high.

Given the remaining risk of an eventual bullish outcome, this index needs to be watched closely as the price action develops, for early clues that this bearish count may be failing. I find that often, the ichimoku chart provides early clues of a trend change, so I'll be keeping a close eye on it. If the lagging line manages to get above the price line during any rally in prices, that may be the first warning signs (though obviously not conclusive) of a trend change and would suggest caution on the short side until it becomes apparent whether any such move will be sustained.