Wednesday, 28 July 2010

21:22 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. On the count on the chart of Option 3 that rally 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 yesterday'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 yesterday 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 yesterday'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.

However, we may only be in wave 4 of (3) within the second zig zag. 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).

This 1 min chart shows the two possibilities. It shows the [C] wave of the second zig zag which started at the 1065.25 low (please note that the degree of the labels relates to Option 2):

SPX 1 min - (1)-(2)-1-2 down from 1020.95 or wave 4 of (3) of [C] of second zig zag:

And here's a close up of the move from yesterday's high at 1020.95, assuming that the double zig zag completed there:

SPX 1 min - close up of decline from 1020.95, assuming a complete double zig zag:

If we are still in wave (3) of [C], then please refer to the 1 min charts shown under Option 3 below which show how wave 4 of (3) may be counted.

If we're in this count showing nested ones and twos down, the first sign of trouble for the count would be taking out the wave 2 high at 1112.41 before we see 5 waves down to complete wave 3 of (3).  If we then go on to take out the wave (2) high at 1116.05, that may be a further sign that further upside above 1020.95 may be on the cards, though it may still be possible that wave (2) is just forming an expanded flat type correction.

Looking to the downside, the main level to watch is initially 1096.38. If that is taken out before we make a new high, it will rule out the wave 4  of (3) count.  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 represents 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 please refer to the comments and 1 min charts posted under that Option.

Option 3 - Ending diagonal complete at 1010.91

10 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 would 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 yesterday's high or only wave i of (iii) of [c]. Here's the chart from the [b] wave low:

SPX 1 min - wave [c] of minor 2 from the [b] wave low at 1056.88:

And here's a close up of the action from yesterday's high:

SPX 1 min - wave (iv) of [c] or wave ii of (iii) of [c]:

If we completed wave (iii) and are now in a  wave (iv) pullback we have to stay above 1088.96. If its only wave i of (iii), then we have to stay above 1065.25 on this 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 yesterday's high, then minor 2 should be over and we should now be starting minor 3 down.

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 yesterday's high. Please refer to the comments and 1 min charts posted under Option 1 above.

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 please see the comments and 1 min charts posted under Option 1 above.

18:28 BST - SPX Update

If we topped yesterday, here's how the (1)-(2)-1-2 count is looking now:

SPX 1 min - (1)-(2)-1-2 down from 1020.95:

The count is invalid above 1116.05, but won't rule out a continuing wave (2) - that's only invalid if we take out 1020.95.

If we're still in the single zig zag (or only in wave 4 of (3) of [C] on the double zig zag count), we may have had a complete wave (iv) of [c] and be on the way up now in wave (v). However, we might need to retrace more of wave (iii), in which case, the move off today's low may only be a wave x in a continuing wave (iv):

SPX 1 min - wave [c] of minor 2:

15:59 BST - SPX Update

See the bigger picture in last night's update, but here are a couple of counts incorporating the move today:

SPX 1 min - (1)-(2)-1 down from 1020.95:

This count assumes yesterday's high was the end of a double zig zag from the 1 July low. Obviously, its invalidated above 1020.95, but for the count shown above, the first invalidation point is the wave (2) high at 1116.05.

Or, we're still in wave (3) of the [C] wave of that double zig zag and yesterday and today saw a wave 4 of (3) correction (see first 1 min chart at the end of last night's update, and see the count for the move down from yesterday's high on the following chart). Or, on the single zig zag count shown on the chart of Option 3, we're in wave (iv) of [c] of the zig zag or wave ii of (iii) of [c]:

SPX 1 min - wave [c] of minor 2 single zig zag:

This count is invalidated if we take out 1088.96 before making a new high (if we're in wave (iv)) or belwo 1065.25 (if we'r in wave ii of (iii).

13:55 BST - SPX Update: Interesting fib stuff

This is the updated chart that I posted at the weekend with some fib stuff relating to both time and price on 60 min chart of SPX:

SPX 60 min - fib time and price:

According to my calculations, with esignal using 7 hourly bars per day, 144 bars from the 1 July low hits some time today. You might recall that in the rally marked wave (ii), the rally lasted 145 bars, so it would produce a certain symmetry to see this wave ii rally end around the same sort of period.

Also, you might recall that the first leg of the wave (ii) rally was 65 points and the second leg was 89 points. On this wave ii rally, the first leg was 89 points and we have, so far, reached 64 points for the second leg. Again, it would be a nice symmetry of sorts to see yesterday's high end the rally from the 1 July low for this reason.

Whether or not it does, depends of course, on the wave count. One of the counts I have for the move up from the 1 July low suggests that the rally completed yesterday (see the first 1 min chart at the end of last night's update)  However, its by no means certain as you can see from the alternate count shown on that chart and also the count shown on the second 1 min chart at the end of that update.

So, we'll have to wait and see if this fib stuff plays out. While its all very interesting, more important, of course, will be to watch the important levels on the upside and the downside (see last night's update for some that I'm watching) to give us a clue as to near term direction.

11:33 BST - Markets Update: Is FTSE's move now predicting SPX will take out 1173.57?

For a while it seemed like FTSE was leading the main indices to the downside in a number of nested ones and twos (on the bearish count), but recently, its been showing strength and has taken out its high of 21 June 2010, whereas, so far at least, only the transports in the US have achieved this and not even the DAX, which has been the strongest of the main world indices (that I watch), has managed this.

So now, on FTSE, there is no longer a nested ones and twos count for the bearish case. Its now only a [i]-[ii] count, as you can see from this daily chart:

FTSE Daily - from April 2010 high:

You can see from this chart that FTSE has nearly reached the 61.8% retracement level of the decline from the April 2010 high. That level is in line with its declining weekly 200 ma. Perhaps, if FTSE gets up there, that is where it will turn down, if the bearish count is in play (its not certain that it will make it up there, especially not without the other main indices following - wave (y) of [ii] does look reasonably complete now on lower timeframes).
The Dax count also has a wave [i] low in early May, but so far, the wave [ii] high is the high of 21 June at 6330.81. At the moment, I have the Dax in a [i]-[i]-i-ii of (i) of [iii] count:

Dax Daily - from April 2010 high:

It doesn't really have to do much to take out the current wave [ii] high to turn it back into a [i]-[ii] count and align it with FTSE. The trouble is that it then doesn't have much room before taking out the April high, which would rule out the bearish count altogher, leaving the bullish count shown, where the move since April 2010 has been a triangle wave (X).

Of course, the Dax doesn't have to align exactly with the FTSE, so it could simply be leading the the way down with the bearish count as currently labelled, and not take out the existing wave [ii] high.

So, if FTSE and Dax had their wave [i] lows in early May, that coincides with the count I have on the chart of Option 1 for SPX - see the 60 min count page, but here is an up to date chart:

This raises the question whether SPX is actually still in wave [ii] and, therefore, likely to take out the high currently labelled as wave [ii] on that chart at 1173.57.

On the current bearish count under this Option, I have SPX in a [i]-[i]-(i)-(ii)-i-ii move off the April high. If we take out the 1131.23 high of 21 June, then it becomes a [i]-[ii]-(i)-(ii) count, which would be pretty much the same as the Dax is showing at present, though the second one and two on the Dax is a degree lower.  Its perfectly possible for SPX and the Dax to lag FTSE in this way to the upside and lead it down on this count, to the downside.

However, if it were to align itself fully with FTSE, that could mean it is destined to take out the current wave (ii) high at 1131.23 and, possibly, the current wave [ii] high at 1173.57, making the whole of the move since the flash crash in early May an expanded flat wave [ii] as you can see from the alternative labels on the chart.

Having said that, its perfectly possible for SPX to have had its wave [i] low in early May with FTSE and Dax, and for it to still be in wave [ii] instead of the nested ones and twos, but not take out the 1173.57 high. This would arise if we have a running flat in progress, which would mean that the alternative wave (y) of [ii] from 1010.91 does not get as high as the alternative wave (w) of [ii]. That could certainly be envisaged if the single zig zag from 1010.91 shown on the chart of Option 3  (see last night's update) is playing out  for the alternative wave (y) of [ii] - it may only need one more high to complete, which may make it unlikely that it will reach the 1173.57 level (see the 1 min chart at the end of last night's update).

So, the action in the FTSE does not necessarily mean that SPX will take out the 1173.57 high. However, the risk remains something to bear in mind until we take out meaningful levels to the downside - I identified some levels to watch in last night's update.

Speaking of upside risk, I should just mention also the potential of alot more upside as long as meaningful downside levels remain intact. You can see on the charts of FTSE and the Dax above the alternative bullish counts.

Unlike most of the main indices, FTSE does have a reasonably nice looking 5 wave count from the March 2009 low. You can see the alternative, bullish count I've placed on this chart which labels the April high as intermediate wave (1), or it could just be wave (A) within a larger primary wave [2] rally.  

The decline from the April high counts OK as  an A-B-C for wave (2),  but its only a 38.2% retracement of the rally from March 2009, so where I have wave (2) could just be wave W of (2) and we would now be in wave X of (2), or the decline from April may be the whole of wave (B) in a Primary wave [2] rally, so wave (C) up would now be underway.

If FTSE had a 5 wave move up from March 2009, this would coincide with the 5 wave impulse count I have for SPX (see here). On FTSE and SPX, that count isn't invalidated unless we take out the March 2009 lows - that's a long way away. 

If FTSE is in an (A)-(B)-(C) for primary [2], that would coincide with the counts I have for SPX shown as alternatives on the zig zag counts (see here), although those counts show SPX in second or third zig zags rather than a single zig zag, but the effect is the same. 

The Dax doesn't seem to have a 5 wave impulse count from the March 2009 low, but the whole rise from that low to the April 2010 high could just be wave (Z) in a primary wave [2]. That would make the decline from April 2010 a wave (X) - and it looks like a triangle which could well have completed at the 20 July low. We would really need to take out the low of wave A of the triangle at 5607.68 to rule out the triangle

So, with the invalidation points for the more bullish counts being so far below where the markets are currently, I don't think its wise to dismiss them from consideration, whatever you might think of the overall economy or the sovereign debt situation. Those issues can't be traded - we've seen that time and again, most recently with the rally from March 2009 which occurred against a backdrop of a largely deteriorating global economy.

The best we can do is to identify the possible paths the market might take, both bullish and bearish (whatever our own personal bias may be) and  from there, to identify the levels  in the market that will tell us when something is or isn't happening or which increase the odds in favour of one count or another.

Looking at the market in this way, I think we remain in a state of flux - either the bullish or bearish counts may be playing out. Nothing has happened so far to tell me that its one or the other. So I have to keep my eye on both.  Either of them has the potential to move quickly once it takes hold and I'm sure it won't be pleasant to get caught on the wrong side.