Friday, 9 July 2010

22:49 BST - SPX Update

Well, it seems that it was right to be cautious as to whether or not we had made a top given that the market was not dropping with any meaning at the time I posted a possible count into a top (see here).

Still, the rally today was odd in that it wasn't very impulsive looking, but of course, there's still time for it to develop. However, there are various ways to account for the action, which I'll show in the charts below.

Remember that 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 2 remaining Counts  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. Count 1 shows 5 waves down from 1131.23 complete at 1010.91 and we are retracing the whole of that decline, while Count 4 shows a (i), (ii), i, ii decline from 1131.23 to 1101.91 and we are only retracing the decline from 1082.60 which is the wave i start point.

Here's how things stand after today:

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

9 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 a double zig zag count with the (C) wave of [Y] still in progress but possibly in its final throes. 

I've shown the action today as part of an ending diagonal for the 5th wave of (C)

We filled the gap I mentioned yesterday and we're right in the middle of the significant area of price congestion that exists up to about 1085. That level would also be a .618 retracement, so may well be the target for the end of wave ii.

Option 2 - Wave [ii] topped at 1131.23

9 min chart:

For the decline from 1131.23 to 1010.91, I've applied Count 1 to the chart of this Option also.

For the move off the 1010.91 low, I've also shown a double zig zag, but the [C] wave of the second zig zag is labelled differently. For the 5th wave of [C] I've assumed an ordinary impulse in is progress. (see the chart below showing an impulse wave from 1058.24). Its likely that there is still more upside to go on this, but the way I have labelled it for the moment means that if we take out 1072.89, its probably finished. However, it would probably be safer to wait for the low at 1069.54 to be taken out.

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

10 min chart:

I've also applied Count 1 to the chart of this Option, giving us 5 waves down from 1131.23 to 1010.91.

I've labelled this 5 wave decline as wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  It places us now in minor wave 2.  I've labelled the start of 5 waves up from the 1010.91 low, on the assumption that we will get a zig zag type move up for wave 2, since we  would be retracing the whole decline from 1219.80, not just the drop from 1131.23.

I'm showing us currently in wave [3] of iii. Once wave [3] is complete, we'll retrace down in wave [4] and it will have to stay above the wave [1] high at 1042.50 for the count as labelled to remain valid.

The alternate labelling assumes that the 5 waves down from 1131.23 is only wave (a) of [v] and that we are now retracing back up in wave (b). The double zig zag count would apply to the (b) wave.

Remember, if there is further downside  to come, we must stay above 999.83 for the leading diagonal count to remain valid. 

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. 

We've now retraced over 94.1% of wave i of (iii) - its still a valid 2nd wave, but its close to invalidating this count. Remember, 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).

I've shown a slightly different labelling for wave (C) of [Y], making the whole of (C) an ending diagonal. However, I don't think its valid (so I haven't done a close up chart) since its difficult to count  the 4th wave as a zig zag. Still, we'll see. If one of the other counts for (C) of [Y] is in effect (see the charts of Options 1 and 2 above) then the remaining upside which is likely on those counts may well lead to the invalidation of this Count.

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

9 min chart:

On the chart of this Option I've also applied Count 4, so the comments made in respect of invalidation on Option 4 also apply here. 

I'm also showing a further alternative way to count the rally from 1010.91. Its a single zig zag, but different from the one I've shown previously in that we would have wave [C] starting from the low at 1018.33.

Again, there may well be more upside to come and that could invalidate this Count, in which case I'll switch it to Count 1 showing 5 waves down from 1131.23.

Here is the double zig zag count updated from yesterday, which is on the chart of Option 1:

Double zig zag:

And here is the impulse from 1058.24 which is on the chart of Option 2:

Have a great weekend!

17:07 BST - SPX Update

Well, if we did top out at today's high, this is how I would count the start the next decline:

SPX 1 min:

I can't say that the market seems like its in any hurry to drop, so caution required as to whether or not we've made a top.

Bear in mind also my update at 12:17 BST setting out the risks that the next drop may only be a temporary suspension of the up move.

15:53 BST - SPX Update

Looks like a possible wedge into a top? Let's see:

SPX 1 min:

14:11 BST - ES Update

The high of the 5 wave move up on ES shortly after the open yesterday looked like the completion of wave [C], but it seems it was only the 3rd wave of wave [C]. It took until after the cash session closed for ES to take out that early session high.

Now it looks like we may either have a top for wave [C] or be very close to one, just as appears to be the case on SPX. Here's the ES  chart:

ES 5 min chart:


12:17 BST - SPX Update

In last night's update I posted the chart of the double zig zag I've labelled from the 1 July low. I labelled it as complete at yesterday's high, but on the charts of 4 of the 5 Options I'm following for the decline from 1219.80, I labelled it as requiring one more high to complete, or complete at yesterday's close with a truncation.

Either way, the count implies that the double zig zag  from 1 July  is on the verge of completing if it hasn't already done so. Since triple zig zags are said to be rare, this would likely mean that we would also be at the end of the whole correction since 1 July.

That would fit well with us being at a 50% retracement level, resistance and a gap area, as shown on this 5 min chart of SPX:

SPX 5 min - Count 1 with double zig zag:

However, if we only have a single zig zag from 1 July (I posted this before the open yesterday but during the session I only updated the double zig zag count), then once that is complete, the market should fall back from there, but we'd need to be alert to the risk of a second zig zag developing to achieve a greater retracement than the first did. Here is the updated chart of the single zig zag count:

SPX  1 min - single zig zag:

The thing I don't like about it is that wave (2) of [C] is such a shallow retracement. Still that doesn't invalidate the count, so assuming its a possible count, it too could just about be complete, again, at the 50% retracement level, etc.

As I've said, once complete, the market should fall back and, if its the end of the correction, then the decline should be pretty swift, given that we would be in a 3rd wave down on virtually all the Counts I'm following (the exception possibly being Option 3 as explained in last night's update).

The trouble is that a double zig zag could develop at any stage provided that the wave [A] low isn't taken out. Having said that, the deeper the decline, the greater the odds will be that a second zig zag will not develop simply on the basis that you want a zig zag to look like one. Sill, unless and until the wave [A] low is taken out, it will be difficult to know for sure that the correction is over, so caution will be required on the short side until then.

Of course, I can't ignore the potentially bullish labelling I have on the chart of Option 3. This puts us at the start of a possible 5 wave move up for the first leg of a minor wave 2 correction of the drop from 1219.80, on the basis that we completed a leading diagonal  minor wave 1 at the low of 1010.91. Here's a close up of this labelling of the move from 1 July:

SPX 1 min - impulse from 1 July low:

On the basis of the way I've labelled it, we're nearing completion of  wave [3] of iii. Obviously, we'd expect a wave [4] retracement next. Here, we have a level to watch for that will raise the odds that we're not seeing an impulse up - 1042.50, the high of wave [1] of iii. Wave [4] can't end beyond that level. If it does, then the count as labelled is invalid.

So, if we are at the end of a correction off the 1 July low, we need to see a decisive and, preferably, swift, decline in 5 waves from wherever the correction ends. Anything less might have to be regarded as a potential warning that we only had a single zig zag up from 1 July and a second is now about to begin, or, that we are in a much more bullish and deeper retracement up, retracing the decline from 1219.80, not just the decline from 1131.23 (and on this latter potential, taking out 1042.50 would be a very strong indication that this impulse count is not happening).

9:13 BST - Dollar Update

Here's an update to the dollar chart I posted yesterday showing that potential ending diagonal for the 5th wave of (c) in a wave [iv] correction.

Dollar 60 min chart:

It did make a slightly lower low, which was the risk I mentioned yesterday, but it does now look even better as an ending diagonal. With the way it has developed, today's low may well be the end of the pattern. That low is 83.622, but note that further downside is possible provided 83.315 isn't taken out - that would make wave [5] longer than wave [3], which would invalidate the pattern.

Really, as mentioned yesterday, we want to see the wave [4] high taken out to increase the odds that the pattern is complete. I've marked what I think is the wave [4] high at 83.985.

Even if we do exceed that high, we have to watch the low of the pattern, wherever  that may end up being, since once this pattern is complete, that low should not be taken out and if it is, then something else is happening. In this case, it may be that its not an ending diagonal but a leading diagonal for only the 1st wave of wave v of (c). At this stage I don't think that is likely, but its not something that can be ruled out.

The MACD and its histogram do seem to be indicating that a bottom of sorts may not be far off. The MACD has been diverging bullishly against the new lows in price since 1 July and despite the downward movement in price yesterday, the histogram barely got below zero and, in fact, spent most of the time above the zero line. Still, its price that matters and the levels given above are what I'll be watching.