Monday, 19 July 2010

21:47 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 did nothing to answer  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-i-ii to account for the decline since. The invalidation points are 1079.64, which would eliminate the i-ii, 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 (although the wave degress are different), 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 have completed wave (iv) - taking out today's low will invalidate that, but it may just mean wave (iv) has a bit more to go.

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)-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. If we continue to retrace up, it may mean that the larger diagonal I showed as an alternate on Friday night may be playing out but for the time being, I'll go with this:

SPX 1 min:

The degree labels used relate to Option 2.  The count shows wave [3] sub dividing into a (1)-(2)-1-2 where wave 1 was a leading diagonal. Wave 2 retraced 70.7% of wave 1, which is deep enough to provide some confirmation that a leading diagonal may be the correct count for wave 1. The count calls for a 3rd of a 3rd wave at several degrees  fairly soon. If that does not happen, its going to call the bearish count into question.

However, if we are in the larger leading diagonal count a deeper retracement up wouldn't be unusual, so while the count shown above would be invalidated above 1079.64, a deeper retracement of a larger leading diagonal would be a continuing possibility for the bearish case. However, we'd still need 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've posted previously:

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 would very likely take out the high at 1131.23.

So, the levels to watch haven't really changed from Friday. We'll just have to continue to wait for the market to move decisively one way or another so that at least some possibilities can be excluded.

16:17 BST - SPX Update

The more bullish counts aren't yet off the table:

SPX 1 min - continuing double zig zag:

SPX 1 min - impulse wave up from 1 July:


15:54 BST - SPX Update

Getting closer to that void:

SPX 60 min chart:

15:41 BST - SPX Update

Here's what I'm seeing as a possible count on the bearish scenarios at the moment - a wave (1) down from 1098.66, a wave (2) retrace and then a leading diagonal for wave 1 of (3):

SPX 1 min chart:

We retraced nearly 61.8% of wave 1 which perhaps is deep enough for a retrace of a diagonal if we are in the bearish counts. I prefer this to the larger leading diagonal that I posted on Friday night, but of course, the retracement up may not be complete so we'll just have to see what develops now - it may retrace up enough that the larger leading diagonal looks more likely. 

I'm watching today's highs and the wave (1) low for signals that a higher retacement up may be playing out.

11:04 BST Dollar Update - Some trading examples

On 9 July, I posted a count showing a possible end to the decline in the dollar with what looked like an ending diagonal. It ultimately turned out not to be the case, but as mentioned in my post on 15 July, there was still a profitable long play based on the thought that the low identified on 9 July at 83.622 was possibly the end of the decline.

Indeed, once the long play was over, there were several opportunities to the downside as well.

Here are two 60 min charts covering the period from the 83.622 low to Friday's close which show some very simple trades primarily using the 13 and 20 simple moving averages for signals:

Dollar 60 min - trades Part 1:

Dollar 60 min - trades Part 2:

Of course, it won't always work out like this, but for the period covered by the two charts, using this very simple  system, there was only one small loss  - on the trade identified at point 5 which was stopped out at point 6.

I think the important point to make here is that elliott wave counts evolve as price action develops. Its important not to get stuck in one line of thought and to be open to all possibiities. Once a possible end to a count is identified, its important to be aware of what price needs to do to increase its odds of it being the correct count and what price shouldn't be doing if the count is correct. Other TA methods can then be deployed to identify entry and exit points as well as giving indications of when the count in question may be in jeopardy so that trading ideas can be adjusted accordingly.