Wednesday, 21 July 2010

21:21 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, followed by 5 waves down to yesterday's low at 1056.88, with today's high being the end of a corrective rally in the form of a double zig zag. 

If correct, then for Options 1 and 2 we would be in a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be in wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be in (iii) of [c] of minor Y down - again, temporarily bearish.   

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) followed by  wave (iv) down to yesterday's low at 1056.88. The rally from there is labelled as wave i of (v) of [a] up.

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

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 remains to be answered.

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 that we are now in a wave iii of (iii) decline.

I've labelled a complete 5 wave decline from 1099.08 to yesterday's low at 1056.88 to complete wave [1] of iii of (iii) down, followed by a double zig zag to today's high at 1088.96 for wave [2] of iii..

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

If we are in a 3rd of a 3rd decline at several degrees of trend as suggested by this count, we need to see price action behave in a manner consistent with that - steep declines with little opportunity to get on. We've probably yet to see this. However, taking out yesterday's low at 1056.88 would be a good start, but we then need to see the July low at 1010.91 taken out pretty quickly.

Until then, the bullish count in Option 3 remains viable, as do other less bullish possibilities, such as a continuing wave ii or (ii) correction (see the 60 min counts page).

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 point is  the same and the same comments made in respect of that count also apply here.

Option 3 - Ending diagonal complete at 1010.91

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 pullback to yesterday's low was wave (iv) of [a].

I've labelled the rally from there as wave i of (v) and the pullback from today's high would be wave ii. It has to stay above 1056.88 for this labelling to remain valid. Falling below that low wouldn't rule out a continuing wave (iv), but it might be less likely and require a review of this bullish count.

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  from  the 1099.08 high. The 5 waves down to yesterday's low would be wave i of (iii)  of [c] and the rally to today's high would be wave ii. We ought now to be in wave iii of (iii) of [c].

The invalidation point is the same as for Options 1 and 2, though a continiung wave (ii) correction wouldn't be ruled out unless we take out 1131.23.

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 for wave [b], 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]. 

I'm counting the 5 waves down from that high to yesterday's low as wave (i)  and today's high as wave (ii) of [c]. The same invalidation point stated for  options 1, 2 and 4  applies here, but again, it wouldn't rule out a continuing wave [b] correction unless 1131.23 is taken out.

Here's an update of the chart 've been posting today looking at the action from today's high (the charts above provide the context for this close up):

SPX 1 min:

The degree labels for the main count used relate to Option 2. Although I have shown wave [1] of iii down complete at today's low, its possible we haven't yet completed it, but in that case, it may not be far off completion, so we'd have to expect a wave [2] rally fairly soon.

The alternate labelling relates to Option 3 above. The low at 1056.88 remained intact so this count is still on.

So, the bearish Options (1, 2, 4 and 5) look to be in better shape after today. However,  the bullish Option (Option 3) remains very much on the table. The levels to watch are 1099.08 and 1056.88 - although a break of these levels will not completely eliminate the bullish or bearish Options, probably only requiring a review of the count, the risk of the bullish count playing out increases above 1099.08 and the risk of the bearish count playing out increases below 1056.88.

19:24 BST - SPX Update

SPX 1 min - today's action:

For the bullish count, we've reached a 50% retracement of wave i - a 61.8% retrace is at about 1069. This count is invalidated below 1056.88. 

For the bearish count, its invalidated above today's high.

17:43 BST - SP X Update

Bullish count: we've started wave iii of (v) up from today's low. Bearish Option: from today's high we've had (1) down and an expanded flat for wave (2).

The bullish count will be invalid as labelled if we drop below today's low; the bearish count is invalid as labelled above today's high.

SPX 1 min chart - today's move:


16:15 BST - SPX Update

We could be at the start of wave iii of (iii) of [iii] down on the bearish Options, 1,2,4, and 5, or just in an [A]-[B]-[C] wave ii of (v) retracement on the bullish Option 3. Here's a close up on a 1 min chart showing the bullish and bearish counts for the decline from today's high:

SPX 1 min - count from 1088.96:

15:03 BST - SPX Update

If we're in an impulse wave up from the 1056.88 low, then today's high could be the end of the 1st wave of that impulse - this is the count I have on the chart of Option 3. Here's the 1 min chart showing the move up from yesterday's low:

SPX 1 min chart - impulse wave:

To negate the impulse wave count, we need to take out 1056.88, Taking out the wave [3] high at 1078.24 would be a start since it would eliminate the possibility that this current pullback is a 4th wave within an extending wave [3]. But only taking out 1056.88 will end this count.

If we completed a double zig zag up from 1056.88 at today's high, (see Options 1,2,4 and 5) taking out the wave (B)  of [Y] low at 1074.25 will increase the odds that the rally from yesterday's low is over and that we should go on to take out yesterday's low. Here's a chart of the double zig zag:

SPX 1 min chart - double zig zag:

12:47 BST - SPX - Is a more sustained downtrend being signalled?

Just a quick look at the RSI (14) on the weekly and daily timeframes may be the confirmation that the bears are looking for, that we are more likely to be in for a sustained period of downward rather than upward movement in the markets.

Here's the weekly chart with the RSI in the window above price:

SPX Weekly RSI:

I've highlighted the behaviour of the RSI during recent bull and bear runs in the market. Clearly, it spends most of its time above the 50 level during a bull run and most of its time below the 50 level during a bear run.  

Looking at the far right of the chart, we seem to be seeing the RSI stuck largely below the 50 line since about early May, suggesting the current downtrend in the market could still have more to go.

Here's the daily:

SPX Daily RSI:

Obviously, the RSI is rather more volatile on this timeframe and its moves out of the bullish or bearish zone are deeper than on the weekly, so there's more scope to be whipsawed out of a position using the RSI alone. 

Still, since early May, its spent most of its time below the 50 line. Though its risen above 50 now, with the 50 day moving average having crossed below the 200ma, it suggests that RSI crosses above 50 may be only temporary in nature and not indicative of a change back to an uptrend.

The Bullish Percent line of the SPX is also behaving in a bearish manner - its been unable to recover above the 50 line and get back into the bullish zone, despite recent steep rallies. Its also below its 21 day moving average. This isn't bullish and seems more indicative of the beginnings of a sustained downtrend.

So, just a couple of things to keep an eye on as price action develops.