Wednesday, 7 July 2010

22:27 BST - SPX Update

We may finally have some indciation as to 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.

Today the odds increased that we are in a 2nd wave retracement of either the whole drop from 1131.23 (Count 1), or the drop from 1082.60, (Count 4) or, perhaps less likely, a 4th wave retracement of the drop from 1099.64 (Count 5). I think its now pretty unlikely that we are in a 4th wave correcting the drop from 1082.60 (Count 2).

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

On the chart of each Option I have labelled one of the 4 Counts (numbered 1,2,4 and 5) that I'm following for the decline from 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.

Here's how things stand after today:

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

7 min chart:

I've applied Count 1 to the chart of this Option. It assumes that we completed 5 waves down from 1131.23 at the low of 1010.91. From that low, I've labelled the double zig zag count that was posted in my last update today.  It puts us in the [C] wave of the second zig zag from 1010.91. Its possible that today's high marks the end of the second zig zag, but we need to be aware of the gap between 1071 and 1074 which the market may be looking to fill.

Interestingly, [Y] is equal to (EDIT:) 1.382 x [W] at today's high, but we've only retraced about 38.2% of the decline from 1131.23, so we perhaps ought to expect more upside before this is done, but be aware that it is possible to count it as complete.

Option 2 - Wave [ii] topped at 1131.23

7 min chart:

This is Count 2 which has us in the 5th wave of a 5 wave drop from 1131.23 extending.

The low of 1010.91 is labelled as the 3rd wave of the 5th wave and we would currently be in the 4th wave. 

This Count is now very unlikely given the depth of the retracement - its nearly 70.7% which would be unusal for a 4th wave. We're quite close to it being invalidated anyway. 1074.63 is the invalidation point - if we take out that level, that will confirm this Count is wrong and that one of the remaining Counts is in effect (the alternate that has been on the chart is Count 1, ie that 5 waves down from 1131.23 completed at 1010.91 and we are now retracing that whole decline).

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

7 min chart:

I've also been showing Count 2 on the chart of this Option and it too seems unlikely to be correct for the same reasons as set out in respect of the chart of Option 2 above. However, I'll keep it on the chart until its invalidated.

Remember that for this Option to remain valid, we need to stay above 999.83 for the 5th wave of the leading diagonal and so far, we have. This means that we do have to consider the bullish alternative, that we bottomed in wave [v] of a leading diagonal down from 1219.80 at the low of  1010.91 low. It will only be invalidated if we drop below 1010.91.

It would mean that we are retracing the whole decline from 1219.80, not just the drop from 1131.23 - if we take out that level, then the bullish alternative is likely to be in play.

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

15 min chart:

I've applied Count 4 to the chart of this Option. It puts us in an extending 3rd wave down from 1131.23. I've marked today's high as the end of wave ii of (iii), but it could have more to go bearing in mind the gap between 1071 and 1074 mentioned above.

So far we've retraced nearly 70.7% of wave i of (iii) - a deeper retracement is perfectly possible for a 2nd wave.

The retracement can't exceed 1082.60 if this count is correct. If it does, it'll be likely that Count 1 is in operation (see chart of Option 1 above).

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

8 min chart:

On the chart of this Option I've applied Count 5 which puts us in an extending 3rd wave off the 1131.23 high. On this Count, we are currently in wave iv of (iii) which is retracing the decline from 1099.64.

Its a deep 4th wave retracement, but its only invalidated above 1085.83, so it remains a possibility at this stage. If it takes out that level, then Count 1  will probably be the correct Count (Count 4 would be invalidated above 1082.60 so that would no longer be a valid Count if 1085.83 is taken out).

Here is the double zig zag count that I've applied to the charts of Options 1 and 5. There are a number of other ways to label the move from 1010.91, but I'll just show this one for the time being, though the charts of Options 2, 3 and 4 show one variation, but without the detail:

Double zig zag:

As mentioned above, it may be complete at today's high, but there are reasons to think  that a higher level will be reached before this move is over (see above comments).  In that case, rather than 5 waves up from the [B] wave low being complete at today's high, we would likely only be in the 3rd wave of 5 for [C].

18:45 BST SPX Update

It may be possible that we're now into the [C] wave of a second zig zag from 1010.91. Here's a possible count:

SPX 1 min chart - double zig zag in progress:

We may already have a complete 5 waves up from the [B] wave low, which would complete wave [C], but it may still need another high. Also, those 5 waves may only be the 1st wave of [C]. If we take out the [B] wave low, that would eliminate the latter possibility and would increase the odds that we have a complete double zig zag.

16:50 BST - SPX Update

Here's another way to count a complete double zig zag at today's high:

SPX 1 min chart - double zig zag complete at 1045.37:

But, as mentioned in my previous update, we may just be seeing wave [A] of the second zig zag:

SPX 1 min chart - double zig zag in progress:

I'm showing [A] as complete, but the 5th wave may still be in progress, so there may be more to go on the upside. 

Obviously, this count also has a lot more upside potential once wave [B] completes.

If we take out today's high then each count will need to be reviewed.

16:21 BST - SPX Update

With yesterday's high being breached, the count that showed a complete double zig zag at that high is eliminated and I've now moved on to the count that had us in a continuing double zig zag.

The rally from yesterday's low could be just wave [A] of that second zig zag, but here is a way to count it that would have it complete at today's high or needing one more high to complete:

SPX 1 min chart - double zig zag in progress:

If we take out that 1039.75 level, it may well mean that this count is complete, as labelled, but as mentioned above, we may only be in wave [A] of the second zig zag, so caution is required on the short side.

14:50 BST - SPX Update

If this count is correct, then this would be the area in which we would expect it to turn down now for wave [3] of  v. Obviously, there's nothing to stop it from going to the higher area of resistance up to about 1040. The invalidation point remains yesterday's high at 1042.50:

SPX 1 min chart - complete double zig zag at 1042.50:

13:44 BST - ES Update

Here's  a 5 min chart of ES showing what I think may be happening, using the nested ones and twos Count (Count 5) I have for SPX (see the chart of Option 5 for SPX from last night):

ES 5 min chart:

I have a possible wave iv top at yesterday's high (which coincides with the high in the cash session). It does look like a clean 5 waves down from there on ES for wave [1] of v,  followed by some sideways action which looks corrective. 

I'm labelling the sideways action as (A)-(B)-(C) for the moment and once complete it would be wave [2] of 5 on this Count (see last night's Update on SPX for the other Counts from the SPX high of 1131.23). Obviously, yesterday's high is crucial to this Count (as it is for SPX), so that's where I'll know its wrong and will then look for more upside in a continuing wave iv, though I'll be alert to the possibility of one of the more bullish Counts perhaps being in operation.