Thursday, 15 July 2010

23:43 BST - Dollar update

Although my most favoured count, that had us in wave [iv] of minor 3 has not been invalidated, the action in the dollar over the last couple of days suggests it is more likely that my next favoured count is probably correct. That has intermediate wave [1] complete as at the high on 7 June, so the decline from there is intermediate wave [2].

I said on 9 July that if we took out the low of what was assumed to be an ending diagonal at that time, then it was likely that something other than the end of the correction from 7 June was occurring. I think my previously second favourite count is that something else.

Here's the daily chart updated from the weekend:

The target for wave [2] is most likely somewhere in the 50-61.8% retracement level shown highlighted in yellow on the chart. However, we are now into an area of prior price congestion with today's decline (highlighted in blue) so its possible that wave [2] could end not too far away from current levels.

Looking at the 90 min chart, however, the wave count doesn't look complete and looking at where we possibly are in that count, we could well reach that yellow highlighted area by the time we are done:

Dollar 90 min chart:

That horizontal black line on the chart marks the low of what was thought to be an ending diagonal completing on 9 July. It did provide a good long opportunity before it was invalidated as being an end to the correction, which goes to show that you can be wrong on the wave count, yet still make money.

Once price broke the low in question, 83,622,  on the push down to 83.383, it was likely to be a good short opportunity, either within the subsequent consolidation between the black and red lines, or, on the break and re-test of the red line.

So, it looks like there should be more downside to come. However, a move now above the low marked (i) at 83.383 would mean that something is amiss with the count and that the correction may well have ended. If we break above the [b] wave high, then it will be almost certain that its ended. This all assumes, of course, that the labels are correctly placed.

21:44 BST - SPX Update

That was a wild ride! I don't have time to post all the charts of all the Options today (the Options 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) but here's how I think things look.

On the counts that imply the rally from the 1 July low is a corrective one (Options 1, 2, 4 and 5) there are a couple of ways to account for today's moves. 

The first continues to proceed on the basis that we topped yesterday (with a truncated 5th) and we have since seen a very deep expanded flat correction:

SPX 1 min - topped at 1099.08:

Obviously, it won't take much to invalidate this count! It has to drop from the outset tomorrow or it will be invalidated.

The second possibility is that we are in the alternate double zig zag I posted earlier, with today's low being the [B] wave and the rally this afternoon being part of wave [C] to complete the second zig zag:

SPX 1 min - double zig zag still in progress:

This count would be invalidated if we take out the [B] wave low  at 1080.53 without making a new high first.

On the count that places us in a 5 wave move off the 1 July low (Option 3), which would be part of a larger correction up,  I labelled yesterday's high as wave (iii) of that advance and today's low may have been wave (iv):

Option 3 chart:

The retracement for wave (iv) was 23.6% of wave (iii). I've assumed it ended at today's low and that we are now in wave (v) of [a] up. It may be that wave (iv) is still in progress - if we don't make a new high in five waves, this possibility may be on the table.

So, there seems to be a likelihood of new highs for this rally from 1 July, but I won't dismiss the possibility of a top to a corrective move up at yesterday's high until its invalidated by taking out the 1099.08 level I've labelled as the top. If that's taken out then the bear case will be put on hold for a little while longer.

20:09 BST - SPX Update

On the bearish counts, I've switched to the truncated 5th wave of [C] of the second zig zag so we only have two sets of ones and twos down rather than the three that today's action would have called for:

EDIT: Sorry - posted the wrong chart. The wave 2 should be labelled w (at 1086.92)-x (at 1083.26) -y (at 1091.91) and no ending diagonal!

16:52 BST - SPX Update

Apart from the near term bullish count shown on the chart of Option 3 which has us retracing the whole decline from 1219.80, here's another way to count the second zig zag on the Options which have us retracing only the decline from 1131.23 (see the highlighted labels):

SPX 1 min - alternate double zig zag:

It shows only wave [A] of the second zig zag as complete and we would now be in wave [B] (which may have further downside to go). So, this is another reason why we can't just assume that a major decline has started.

16:28 BST - SPX Update - Interesting fractal

Can't say if this will have the same outcome, but it  interesting how the same pattern from yesterday seems to be repeating today (it may be of no predictive value, but it caught my eye):

SPX 1 min:

15:30 BST - SPX Update

Here's the bearish count updated from yesterday:

SPX 1 min chart - complete double zig zag:

Its looks nice and impulsive to the downside, so could be the 3rd of a 3rd wave that most of the bearish counts call for. However, the drop from where I have wave 2 could just be part of  a 4th wave correction within an impulse up from 1 July - see the chart of Option 3 from last night. The invalidation point for that way of counting the impulse is well below us at 1028.74. So, we can't necessarily assume we've started a major decline at this stage. But its a good start.

13:57 BST - ES Update

I've changed the count on ES to the double zig zag I've been using on SPX. We still haven't taken out the high from overnight on 13 July (which I have labelled 3 of (C) of [X]) so where I have the end of [X] may only be the first wave of wave 5 of (C). Taking out the wave 4 of (C) low (assuming its in the right place) will eliminate the possibility of wave 5 extending.

ES 5 min chart: