Monday, 26 July 2010

22:12 BST - SPX Update

The Options 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.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. The count on the chart of Option 3 anticipates rather more upside even though it is also a corrective move, since it is correcting the whole decline from 1219.80, not just the decline from 1131.23. 

On the charts of Options 1, 2, 4 and 5 I have labelled a double zig zag count from the 1 July low ay 1010.91.
Its possible that this double zig zag completed at today's high.
If correct, then for Options 1 and 2 we would now be about to start a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be about to start wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be about to start (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,  we seem to be in minute [c] of  minor 2 up.

Here's how things stand after today: 

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

10 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 would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

Its possible to count the double zig zag as complete at today's high of 1115.01. At that level, [Y] is about .618 x [W]. Also, within [Y], wave (C) is nearly 1.618 x wave (A). Also, its nearing a .886% retracment of the decline from 1131.23.

If wave ii is not complete, then the level to watch remains 1131.23 on any further rally. Exceeding that level will invalidate the count (though it won't preclude a continuing correction in wave (ii) - see the commentary on the 60 min counts page).

On the downside, the main level to watch is probably 1065.25. If that is taken out, the chances are good that the corrective move is over. Until then, the risk remains that any declines will simply be a precursor to new highs.

Option 2 - Wave [ii] topped at 1131.23

10 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 about to start wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (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

10 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 minute [c] of minor wave 2 up.  

The ending diagonal count shown during the past couple of days was invalidated with the move above 1112.98, so it looks like wave [c] is developing as an impulse. Whether we've completed or are completing wave (iii) or only wave i of (iii), remains open to question.

If we completed wave (iii) today or are about to, any wave (iv) pullback has to stay above 1088.96. If its only wave i of (iii), then we have to stay above 1065.25 on any pullback in wave ii of (iii).

There may actually be another potential ending diagonal that may be forming from the 1056.88 low. This arises because of the way price has moved up and the way momentum is diverging. However, I would have us completing wave (iii) of the ed at today's high or slightly higher, so we need to see if any wave (iv) pullback overlaps with wave (i) of this potential ed. For the moment, its just something to watch - here's the chart with the lines of the potential ed sketched in:

SPX 1 min - wave [c]:

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 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 - see the bullish alternate chart for Option 4 on the 60 min counts page.

For the moment, I've assumed we are completing a double zig zag for wave (ii) of [c], if it is not already complete at today's high.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.

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

10 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.

This is the same double zig zag shown for Options 1, 2 and 4, so the same invalidation point stated for  options 1, 2 and 4  applies here.

Here is the updated 1 min chart of the double zig zag, showing the count for 5 waves up from the 1065.25 low (this 5 waves would be wave [C] of a second zig zag for Options 1, 2, 4 and 5, or it could be wave i of (iii) or (iii) on the Option 3 chart).

SPX 1 min - from 1065.25:

With today's move, I've relabelled it to show either a complete 5 waves up at today's high, or a sub dividing 3rd wave. 

Based on the above chart, if we take out 1096.38, in an assumed wave 4 of (3) pullback, the sub-dividing wave (3) is out and its likely that we completed 5 waves at today's high. On Options 1, 2, 4 and 5, that should mark the end of the second zig zag and complete the correction of the decline from 1131.23. On Option 3, it could be wave (iii) of [c] or just wave i of (iii) of [c].

If a double zig zag from 1010.91 is complete at today's high, we should start to drop impulsively (because one of the bearish Options (1, 2, 4 or 5 would be playing out). If we don't, the risk remains that there may be more upside to correct the decline from 1219.80, if option 3 is playing out. Or, it increases the chance thatone of the even more bullish possibilities mentioned above and on the 60 min counts page may be at work. 

18:38 BST - SPX Update

The ending diagonal count, as labelled, will be negated if we move above 1112.98 because that would make wave (v) of the diagonal (see highlighted labels) longer than wave (iii).

If that happens, we're probably in one of the other counts shown, either a (i)-(ii)-i up or we're seeing wave (iii) of [c] play out today (you can see the count for 5 waves up from 1065.25 on the second chart posted in my earlier update):

SPX 1 min  - wave [c] of minor 2:

15:46 BST - SPX Update


SPX 1 min - ending diagonal for [c] of 2:

Taking out the wave (iii) high of the diagonal labelled would be an initial indication that it might be over. The next three levels I've marked on the chart, the wave (iv) low, the wave (ii) low and the 1065.25 level (which would be wave b of (i) in the diagonal), would give even better signals that it may be over.

However, the best sign that the correction is over is still taking out the 1056.88 low, so any short trades above that level need to bear in mind that we could yet have higher highs to come in the (i)-(ii)-i count shown, or the leading diagonal possibility I mentioned at the weekend.

The count for a straight impulse up from 1065.25 for wave [C] of a second zig zag looks like it may need another high if that is the count playing out. Taking out 1104.63 ought to be an initial sign that its already topped, but in this count, the most likely sign of a top would be taking out that wave [B] low at 1065.25. Here's the chart:

SPX 1 min - wace [C] of second zig zag from 1065.25: