Friday, 2 July 2010

21:32 BST - SPX Update

No resolution yet to the question whether we're in a deep 2nd wave retracement of the decline from 1131.23 or a shallower 2nd wave retracement of the decline from 1082.60 or a 4th wave retracement or something more bullish that will take us back above 1131.23.

Remember, the Options listed below are the different ways to count the move down from 1219.80. There are 5 that I'm following and they are set out on the 60 min counts page. This is updated at least weekly.

I have a shorter term chart for each of those Options (which are updated as the price action develops) and I have put on each a different way to count the more recent moves, currently from the high of 1131.23. Each of these counts could apply to any one of the Options, though what they mean may differ depending on which Option you are looking at.

So it might seem confusing to have so many Options and counts, but its actually quite straightforward.

Here's how things stand after today:

Option 1 - Wave (ii) of [iii] topped at 1131.23

7 min chart:

For this count I'm assuming we're in the on-going single zig zag count that I posted earlier, since its a wave ii retracement, so ought to retrace more than the rally from 1010.91 has done to date.  Of course, a single zig zag could become a double zig zag and also note the possibility labelled on the chart, that we are only in the early stages of wave (A) of an upward correction.

This count is invalidated below 1010.91.

Option 2 - Wave [ii] topped at 1131.23

7 min chart:

For this count I'm showing the completed double zig zag I've been posting about today. It will be invalidated above 1032.95 and the on-going single zig zag will then be the most likely count. If that happens, the next invalidation point ia 1074.63 - wave [4] can't end above that.

Option 3 - Wave [iv] of an ending diagonal completed at 1131.23

7 min chart:

Again, I'm using the completed double zig zag count here. The comments made in respect of the count on the chart of Option 2 apply here, with the same invalidation points.

The bullish alternative, that we bottomed in wave [v] of a leading diagonal down from 1219.80 at yesterday's 1010.91 low remains. It will only be invalidated if we drop below 999.83.

Option 4 - Wave [b] of minor Y within intermediate [X] topped at 1131.23

15 min chart:

For this count I'm going with the on-going single zig zag. since, as a wave ii retracement, it ought to retrace more than it has done to date. You can see the retracement levels on the chart. Perhaps a target of 1047 at the 50% retracement level would be a reasonable target for a wave ii prior to a 3rd of a 3rd decline.

The retracement can't exceed 1082.60 if this count is correct.

Option 5 - Minor wave X within intermediate wave [X] topped at 1131.23. Now in minor Y down

8 min chart:

For this count I'm going with the completed double zig zag. If it takes out the high at 1032.95, then I'll focus on the on-going single zig zag count, but then it will need to stay below 1085.83, the wave i low, to avoid invalidating the count. 

So, those are the levels to watch once again. Next week should help  to determine whether we're in a 4th wave or a 2nd  wave (and if a 2nd wave, which decline we are retracing)  or something more bullish. Well,  I would hope so anyway!

Have a good weekend and to any American readers, Happy 4th of July!

20:32 BST - SPX Update

Nice! Two counts previously on this chart down, one to go:

SPX 1 min  - completed zig zag at 1032.95:

This count is invalidated above 1032.95. If that happens, I'll switch focus to the single zig zag count posted earlier.

20:19 BST - SPX Update

OK, the sub-dividing wave (5) is out of the picture. That just leaves two counts on this chart - wave [2] or wave (4) (I've adjusted the labelling slightly). The former is invalidated above today's high. The latter is invalidated if it ends above 1024.57:

SPX 1 min - completed double zig zag at 1032.95:

19:56 BST - SPX Update

All three counts on this chart updated from an hour ago remain valid - the sub-dividing wave (5) count just managed to survive, but if that's the operative count, it probably has to have started wave 3 of (5) now:

SPX 1 min - double zig zag completed at 1032.95:

If we don't take out the low marked (X) at 1015.93, we could be in a triangle, in which case, its almost certain that we're in wave (4) rather than wave [2]. Otherwise, the other levels to watch are the same as before.

18:55 BST - SPX Update

Although the single zig zag count I posted earlier remains valid until we take out yesterday's low at 1010.91, here's what I'm seeing for the decline from today's high which assumes that the double zig zag count I posted earlier is in effect;

SPX 1 min - double zig zag complete at 1032.95:

There are three possible counts here - one puts us at the end of wave [1] down and now in wave [2] up, while the other puts us in either a continuing wave (4) of [1] or in wave 2 of a sub-dividing wave (5) of [1]. 

The continuing wave (4) count is invalidated if wave (4) ends beyond 1024.57. The sub-dividing wave (5) count is invalidated if we take out the high at 1022.62. The main count that puts us in wave [2] is invalidated if we take out today's high at 1032.95. Those are the levels to watch.

Other counts are possible, but I thought three on one chart would be enough for the moment!

15:36 BST - SPX Update

If we take out today's current high at 1032.95, invalidating the count I posted earlier showing a complete double zig zag, this may be what we are seeing:

SPX 1 min - single zig zag in progress:

Note: we may still be in the (Y) wave of [B], so taking out what I have as the [B] wave low won't necessarily invalidate this count. Only taking out the low from yesterday at 1010.91 without making a new high first will invalidate it.

15:07 BST - SPX Update

This is looking like a possible count for the rally from yesterday's low:

SPX 1 min - completed double zig zag:

The high of today is the invaildation point for this count.

If its correct, its still a shallow retracement up, suggesting we're seeing a 4th wave correction.

12:25 BST - ES and SPX Update

Its early to do so, but looking at the overnight action in the futures, it can be counted as a complete zig zag up from yesterday's lows. Here's the 5 min chart of ES:

ES 5 min chart:

As noted, however, it could just be the first zig zag in a double zig zag, especially if we're in a 2nd wave correction of the entire decline from 1131.23 (see the count on the chart of Option 1 for SPX) rather than a 4th wave correction.

During yesterday's session I posted a possible complete zig zag count for SPX and here is the updated chart:

SPX 1 min - complete zig zag from 1010.91:

Obviously, the high of 1030.32 has to remain intact for this count to remain valid.

Naturally, there are many ways to count the move off the low. Here are two on SPX which anticipate more upside to come (and would likely mean a double zig zag playing out in the futures):
SPX 1 min - single zig zag with [C] in progress as an impulse or ending diagonal:

SPX 1 min - double or single zig zag with [X] or [B] in progress as a triangle:

With the jobs number coming out before the cash open, this thing could go either way - best therefore, to wait and see once things settle down after the number, but perhaps we'll find out today whether we're in a deep 2nd wave correction of the decline from 1131.23, a shallower 2nd wave correction of the decline from 1082.60, a 4th wave correction or a rally that's going to take us back above 1131.23 (see last night's SPX update).

11:14 BST - Dollar Update

Here's the daily ichimoku chart of the dollar:

You can see that it is still in an uptrend, but, the warnings of a possible trend change shown in the 26 June update, remain and have increased: price is below the turning and standard lines, the turning line is below the standard line and the lagging line is below price and slipped below its first line of support from the turning line. As long as this persists, the shorter term trend is down, even though the daily uptrend is intact.

You can see that price is now in the cloud and is also in the middle of an area of price congestion. The lagging line is coming down to its next area of support, the standard line - if the uptrend is to continue, these support areas will  hold. 

What we need to see is price move back up above the cloud, getting above the turning and standard lines. I'll be keeping a close eye on the lagging line because even if price does manage to move up as described, if the lagging line can't get back above the price line, that would be a warning that the move up in price may fail.

At the moment, the action here is consistent with a 4th wave pullback as shown on my currently favoured count.

If price gets below the cloud and the lagging line loses support from the standard line and heads down to the cloud, then, provided the lagging line gets support there, we may see things turn back up, as happened in December 2009 (see the highlighted circles on the chart).

Such price action would probably be too much of a pullback for a 4th wave and is likely to mean that intermediate wave (2) is playing out as highlighted in my last update (its Option 1B on the Dollar page).

On the 60 min timeframe, things still look decidedly bearish:

60 min ichimoku:

Yesterday's decline took price and the lagging line well below the cloud. Since yesterday's low, price has only managed to go sideways. Its flip flopping above and below the turning line at the moment, having moved above it earlier.  

So, currently, there's no sign of a trend change on this timeframe. 

At the moment, there is a risk that a new low, which would look like 5 waves down from where I have the (x) wave high, may be playing out, meaning either we are in a (c) wave down from there, so we'd be at the end of an (a)-(b)-(c) correction from 7 June instead of the (w)-(x)-(y) I've labelled (see the alternative numbered 1 in my last update), or there's the even more bearish possibility that its only wave a of (y) (see the alternative numbered 2 in the last update)

What I'd need to see to start thinking we might reverse this donwtrend is price move more convincingly above the turning line and the turning line start to point upwards. Any rally in price must move the lagging line above the price line, otherwise its not going to be convincing and would suggest to me that the rally will likely fail. Of course, even if these things happen, it will all be happening below the cloud, so would only be initial signs of a trend change, not a confirmation - still tradeable to the upside, but with caution of course.

9:27 BST - SPX Ichimoku Update

Here is how things look on the daily and 60 min ichimoku charts since I last looked at them on 23 June (see here):

Daily ichimoku:

The bearishness in this chart has been maintained. The turning line (blue), which had moved above the standard line (red) did turn back down and should fall back below the standard line soon. Essentially, everything looks as it should in a downtrend and on this timeframe, there is no sign yet of an end to it.

I've highlighted the areas of price congestion which represent support - we are right in the middle of it now. Prices may therefore chop around here for a bit, but if things are really bearish, as the ichimoku chart suggests, they may just fall right through into the void highlighted in blue, where there is very little support on this timeframe, down to the 950 level.

Looking at the 60 min chart:

The signs of a change in trend from up to down that were appearing on 23 June, did play out. Prices did attempt to rally back up, but found resistance at the turning line and the lagging line just failed to get above the price line, which, as mentioned on 23 June, would probably mean that the rally in price would fail.

Everything is firmly in a bearish configuration. The turning line has been doing what it should in a downtrend - providing the first line of resistance to price. If price breaks above it, then the next line of resistance should come from the standard line. I've also highlighted in green the areas of price congestion which are likely areas of resistance on normal TA and which should hold price back in a downtrend.

So, despite yesterday's recovery, there is nothing on this chart that suggests the downtrend is over. Warnings that it is will start to flash if price gets above the turning and standard lines and the lagging line gets above the price line. These signs will be something to take heed of, but if price remains below the cloud while all this is happening, it would only signify a temporary halt of downward action and not a change in trend.