Friday, 16 July 2010

21:44 BST - SPX Update

On the counts that imply the rally from the 1 July low is a corrective one (Options 1, 2, 4 and 5) I've labelled completed double/single zig zags ending with a truncation at 1099.08.

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've labelled the high at 1099.46 as wave (iii) of that advance and the subsequent decline as wave (iv).

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

Today's action still leaves open the question whether the rally from 1 July has completed a corrective move or whether its only all (or maybe, part) of a larger correction up.

Here's how things stand after today:

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

15 min chart:

Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies a wave iii of (iii) decline to follow.

The 1099.08 high is the invalidation point for the completion of wave ii on the double zig zag as labelled.

I've labelled a (1)-(2)-1-2 to account for the decline since. The invalidation points are 1079.64, which would eliminate the 1-2, and then 1098.66, which would call into quesion whether we did top at 1099.08.

Option 2 - Wave [ii] topped at 1131.23

15 min chart:

For this Option, five waves down from 1131.23 represent wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would be in wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July and subsequent decline, so the invalidation points are the same.

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

15 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 could be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minor wave 2 up.  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 having completed wave (iii) (at 1099.46) of what I'm assuming at the moment will be a 5 wave move for wave [a] of minor 2.  This would mean the current pullback should be wave (iv) of [a]. This count would be invalidated if that assumed wave (iv) were to fall below 1028.74, the wave (i) high.

Today's action may not be far off completing wave (iv) - its retraced about 38.2% of wave (iii), which is about right for a 4th wave.

The alternate labelling assumes that the 5 waves down from 1131.23 is only wave (a) of [v] and that the retracement back up was wave (b). Assuming its complete, we'd now be in wave (c) down and the count shown on the charts of the other Options would likely be in effect.

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:

For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c].

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, then the impulse wave I have labelled on the chart of Option 3 would apply here.

For the moment, I've assumed we are starting wave (iii) of [c] down with a (1)-(2)-1-2 from  the 1099.08 high. The invalidation points are the same as for Options 1 and 2.

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

15 min chart:

On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

I've labelled a single zig zag on this chart, but its end point is the same as for Options 1, 2 and 4, namely, the high at 1099.08, so that would be the beginning of wave [c]. The same invalidation points stated for  options 1, 2 and 4  apply here.

Here's an update of the chart I posted earlier showing a possible bearish count for today's move - I've added an alternative to it as well:

SPX 1 min:

Ignore the degrees of the wave labels. I've labelled it as a (1)-(2) down, with wave (3) now in progress and subdividing. However, the alternative  (which I probably prefer) is that we may have completed a leading diagonal down from the 1098.66 high of yesterday. If that's correct, looking at the charts of Options 1, 2, 4 and 5, I would probably count it as the first wave of wave (3) (the labelling on the chart above is one degree higher than that shown on the charts of the Options).
If we did complete a leading diagonal at today's low, we might have to expect  a significant rally on Monday - 78.6% of the decline from 1098.66 is about 1091.

If the other count applies, we could well see a large move down as wave (3) really gets underway.

If we do rally, the leading diagonal count becomes more likely if we get above the low at (1) on the above chart, 1074.71. This is on the basis if we are in wave (3) down from the 1098.66 high, we probably shouldn't be taking out that low at this stage.  We then have to watch the 1098.66 high since if that is taken out, the chances are that we are still in a double zig zag correction, as shown on this chart that I posted earlier:
SPX 1 min - double zig zag still in progress:

The other possibility, if 1098.66 is taken out, would be that the count on the chart of Option 3 is playing out, so we would have to expect a substantial rally which could take out the high at 1131.23.
Have a good weekend!

20:25 BST - SPX Update

Its difficult to count straight lines and chop, but here's a very bearish count of today's action.:

SPX 1 min:

19:44 BST - SPX Update

When the NYSE up volume minus down volume looks like it does in the chart below, trading against the trend can be hazardous. Even during the periods of sideways movement today, the line has just kept dropping. And its at a level (-800,000K) that is very bearish. Its rare for the market to turn around when the up-down volume line looks like this (but then again, it is OPEX, so anything can happen - unless it all happened yesterday afternoon):

SPX - $VOLD 2 min chart:

18:15 BST - SPX Update - Go on, jump. It won't hurt...much

SPX is teetering on the edge. If it breaks below that yellow support area I showed earlier, it shouldn't be too tough to get down to the next pivot low at about 1058. After that, there's an even greater price void all the way back down to 1018-1010 since the run up from there had very little overlap in the price bars.

Here's a 60 min chart:

15:14 BST - SPX Update

Here's a close up of the support we need to break and turn into resistance highlighted on the chart of the most bearish count:

SPX 1 min - double zig zag complete:

15:10 BST - SPX Update

Although the lowest probability count I posted last night is looking OK at the moment, there's no room for complacency.

Taking out yesterday's low did negate the (1)-(2) count for wave [C] of a second zig zag (the second bearish count I posted), but it may just mean that wave [B] is still in progress. 

SPX 1 min - Double zig zag still in progress?:

I would have more confidence in the more bearish count, that the corrective rally is over, if we can get below those support areas I've highlighted and fail to recapture them on any bounce. Otherwise, the risk of further upside remains.

14:01 BST - ES Update

Here's ES with the same double zig zag count as before. Its the count that on SPX might be considered the least likley out of the three I posted in last night's update. Still, its valid until its not:

Es 5 min chart:

Getting below that wave (1) low would be a start for this count, but not conclusive.

9:02 BST - Options Equity Put/Call Ratio

Here's an updated chart of the 5 and 10 day moving averages of the CPCE (updated from my post on 25 June) which may be giving us a warning of a possible turn down in the market:

CPCE Daily Chart:

You can see that we are in the area of that blue dashed line which marked a number of important highs in the market during the 2007 to 2009 decline (see the chart from 25 June). 

Its obvious from the chart that the moving averages can drop further before a market top is formed, but with the 5 ma ticking up, its a warning that a market top may be forming near current levels. 

We need to see the 10ma tick up, however, and the 5 ma cross back above it. This has usually been a good signal of some sort of market top in the past. Its not 100% perfect, but what is.

For the moment, it should be taken as a warning to at least tighten stops on long positions.


1:38 BST - SPX Update - Support, Resistance and Void

The SPX closed yesterday right at an area of resistance that has held it back over the last few days, having earlier on, bounced off gap support (shown in close up on the 1 min chart I posted not long into the session). Here is a 60 min chart showing the point we have reached:

SPX 60 min chart - support and resistance:

The question now is will it make it through that resistance this time and get into that area of price void that exists between 1100 and 1110.

On the double zig zag count however, doing so may mark the end of the correction that the double zig zag represents, although I have shown a wave count (see Options 1 and 2 on the 60 min counts page) which raises the possibility that we could go on to push above 1110 and possibly beyond 1131.23, even on a minute [ii] or minuette (ii) correction.

On the count showing 5 waves in progress from the 1 July low (see the Option 3 chart from last night) we could easily break through and into the void, if not beyond before we see a meaningful pullback in a [b] wave. If we had a wave (iv) low yesterday as I've labelled it, wave (v) would be a 1.618 extension of wave (i) at about 1111, so we might see price fill the void then fall back quickly as it begins its wave [b] retracement. So, filling the void and reaching the next area of congestion would only be a temporary stopping point on this count.

Given the late day run up, most people are probably expecting new highs for the rally to follow. Perhaps this is where the market will catch most by surprise and just drop from here - that's what is suggested by the expanded flat wave (2) count in last night's update

As unlikely as it may seem at the moment, you never can tell with the markets. That's why, until that count is invalidated by price action, for me, it remains on the table. To have any confidence that this count is in effect, we'd need to see pretty much an instant drop and then quick progress down to and through the 1085 - 1080 area and, ultimately, 1070.