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Tuesday 27 July 2010

21:10 BST - SPX Update

The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each 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.

If its complete at today's high, 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 chart of Option 3 I've labelled a single zig zag which  would be minute [c] of  minor 2 up. It does not yet look complete. However, note, the double zig zag count could also be applied here since that has retraced a sufficient amount of the decline from 1219.80 to be a minor 2 correction of that drop.  If that completed today and we apply it to the chart of Option 3, it means that we should be starting minor 3 down now.


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. At that level, [Y] is about .70.7 x [W]. Also, within [Y], wave (C) is just over 1.618 x wave (A). Also, its about  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 initially 1096.38. If that is taken out, it rules out the extending wave (3) shown on the chart below.  After that, there is the low at  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 degrees are different), so the invalidation point and the levels to watch on the downside are the same.


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.  

It remains to be seen whether we completed wave (iii) of [c] at today's high or only wave i of (iii) of [c].

If we completed wave (iii) today 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). These are the levels to watch to rule out one or other of the counts.

As mentioned above, its possible to apply the double zig zag count to this Option given how far that has retraced. If we do that and that double zig zag is complete at today's high, then minor 2 should be over and we should now be starting minor 3 down. So far, we haven't moved down in a manner that suggests this is the case, but it may still be too early to tell. For the time being, we just have to watch the levels mentioned and while they remain intact, further upside potential will remain.

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, looking at the chart of Option 3, the high marked [a] would be wave [i] of A and the  low marked [b] would be wave [ii] of A - 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 and levels to watch stated for  options 1, 2 and 4  apply 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:





It shows either a complete 5 waves up at today's high, followed by a (1)-(2) down (see the chart posted in the 20:00 BST update), or wave (3) still in progress with wave 4 of (3) possibly forming a triangle. 

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].

Here's a close up of the single zig zag count shown on the chart of Option 3:

SPX 1 min - single zig zag:





You can see that from today's high, there may be a triangle forming. That would suggest that today's high was wave (iii) of [c], not i of (iii), since the triangle would have to be a 4th wave. If correct, then one more high should see the end of this zig zag.

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 come with the 3rd wave of the last leg of the second zig zag still in progress or more upside to correct the decline from 1219.80, if option 3 is playing out. Or, it increases the chance that one of the even more bullish possibilities mentioned above and on the 60 min counts page may be at work. 

20:00 BST - SPX Update

Well, if we did top in the double zig zag count at today's high (see my earlier post at 16:07 BST) there would now be another set of ones and twos on the chart I posted at 17:01 BST. To avoid that, here's a possible count that makes the whole of the sideways move today a wave (2):


SPX 1 min chart - double zig zag top at 1120.95, (1)-(2) down:




Today's high is the invalidation point for this count. Please refer to the 16:07 BST post for the other levels to watch.

17:01 BST - SPX Update


Continuing on from my earlier post, the decline from today's high probably looks more corrective, so could well be wave (iv) of [c] on the single zig zag count shown on the chart of Option 3, or 4 of (3) of [C] shown on the charts of Options 1, 2, 4 and 5 and the chart I posted earlier.

However, if we have topped in the double zig zag count, the corrective look of the decline may just be because we're forming a (1)-(2)-1-2 down:

SPX 1 min chart - nested ones and twos from 1120.95:



The count is invalid if we move above the wave (2) high at 1116.81, so we could know pretty soon whether or not this is a possibility.

16:07 BST - SPX Update

Remember, from last night's update, basically, we're looking at a single or double zig zag up from the 1 July low. The single zig zag is shown on the chart of Option 3 while the double zig zag is shown on the charts of Options 1,2,4 and 5.

Zooming in, we're looking for a 5 wave move up from the 1065.25 low marked on those charts. On the single zig zag count, this would likely be wave (iii) of [c] of 2 (using the degrees shown on the Option 3 chart). On the double zig zag, this would likely complete wave [C] of the second zig zag and, therefore, would probably be the end of the correction from 1 July.

Here's the updated chart of the count of 5 waves up from 1065.25 from last night:



On Options 1, 2, 4 and 5, the decline from today's high could either be the start of the 3rd of a 3rd that we're looking for on those bearish Options, or its simply part of the 3rd wave of 5 up from 1065.25, so we would still have a few more ups and downs to go before we top. To rule out the latter we need to take out 1096.38 without making a new high.

On Option 3, the decline from today's high would probably be wave (iv) of [c], so any new high from here could well be the high of minor wave 2. If we take out 1088.96 before making a new high, then the decline from today's high can't be wave (iv) and so we may well have topped in minor 2, perhaps because the double zig zag was playing out on this chart rather than the single zig zag. 

The risk on this single zig zag count is that those 5 waves up from 1065.25 may only be wave i of (iii) - we need to take out 1065.25 to avoid that.

9:25 BST - Dollar Update

I'm still looking for the end of the decline in the dollar from its 7 June high. I've relabelled the count to an A-B-C for intermediate wave (2):

Dollar Index 60 min chart:





I can count 5 waves down from the B wave high at 83.600, with wave [v] of C looking like an ending diagonal. Its possible that the ending diagonal is complete at today's low of 81.913, but it may only now be in its 4th wave, so there would be another low to come. If that's the case, I've shown with the gray line where a 4th wave rally would invalidate the diagonal by causing the lines to become parallel. Also, if today's low is only the 3rd wave of the diagonal, the 3rd wave is 1115 points long, so wherever the 4th wave tops, the 5th wave will need to be shorter than that for the diagonal to remain valid.

The bullish divergence between price and the MACD continues to suggest that a low ought to be near, but until price actually delivers on that, the trend is firmly down. An initial sign of a possible trend change might be if we can get above the wave [iv] of C high at 83.451, but it would need to show impulsive qualities in getting there in order to give any confidence that its not just pullback prior to new lows.