Friday, 30 July 2010

21:27 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 complete double zig zag count from the 1 July low ay 1010.91.

If it did complete at 1120.95,  then for Options 1 and 2 we have started a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we have started wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we have started wave (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. This has had to be re-labelled with today's action and currently has us either in wave [b] of minor 2 or just starting wave [c] up. 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 at 1120.95 and we apply it to the chart of Option 3, it means that we have started 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.

As mentioned above, if we had a double zig zag up from the July low, it counts as complete at 1120.95.

So, I'm counting the decline from 1120.95 as the start of  wave iii of (iii) of [iii] of minor 1.

This 1 min chart shows two possibilities. Either we have completed wave [1] down or we are in a (1)-(2)-1-2.

SPX 1 min - wave [1] down from 1120.95 or (1)-(2)-1-2:

If today's decline was wave (5) to complete wave [1] down, the rally from today's low would be a wave [2] retracement. This would have to stay below 1120.95 for the count to remain valid. A 61.8% retracement would be in the 1108 area, while a 78.6% retracment would take us up to the congestion around the 1113 level. So far, we've retraced just over 50%  and it could be counted as complete as a (W)-(X)-(Y) at today's high.

If the decline is a (1)-(2)-1-2 down, the invalidation point for this is the wave (2) high at 1115.90. If that is taken out, then the likelihood is that we did complete wave [1] at today's low and that remains valid unless we take out 1120.95. 
On the downside, the main level to watch is initially today's low at 1088.01. Obviously, that has to be taken out once we complete wave [2] (or 2) if we are in a larger 3rd wave down.  After that, with the revised count for the single zig zag (see the charts under option 3), the next level to watch is way down at 1010.91. In the meantime, we could have more confidence in this count being correct even before 1010.91 is taken out, if we were to see large impulsive declines that are not retraced immediately and significantly.  Until then, the risk of  new highs remains.

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 now 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 the move down from the 1120.95 high (although the wave degrees are different), so please refer to the comments and 1 min chart 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.  

Yesterday it looked like we were in wave (iv) of [c], but today, the decline from what was labelled wave (iii) at 1120.95, took out the wave (i) high at 1088.96, so the decline from 1120.95 could no longer count as wave (iv).

However, the possibility that we are still in a single zig zag from the July low remains by reverting to the count I had been following until 22 July. It makes the 1120.95 high wave [a] of minor 2. Today's decline would be all or part of wave [b]. Wave [b] would certainly look better on the larger time frames if it pulls back rather more than it has so far. 

Here's the chart from the July low:

SPX 1 min - minor 2 from the July low:

I've shown wave [b] complete at today's low, but note the alternate count which would entail further downside in wave [b] before we move up in wave [c].

Here's a close up of the action from the 1120.95 high (wave [a]) which shows wave [b] as complete:

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

This count will remain a possibility until we take out the July low at 1010.91.

Timewise, this count looks OK if the larger count shown on the chart of Option 3 (see the 60 min counts page for perspective) is correct, with minor wave 1 completing at the 1 July low. To the 1120.95 high, wave 2 would only have lasted .382 x the time it took for wave 1. If the count in the above charts is  the correct one, it will allow wave 2 to use up more time, without being out of proportion in terms of time, to wave 1.  The count probably would not look as proportionate timewise on any of the other Options.

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 did complete at the 1120.95 high, then minor 2 should be over and we should now have started 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]. With that complete, we would now be in wave (iii) of [c] down.

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, the possible counts for the move up from there are shown on the 60 min chart of the bullish alternate count for Option 4 on the 60 min counts page which shows a [i]-[ii]-(i)-(ii)-i up from the July low. Alternatively, it may just be a [i]-[i]-(i)-(ii) as shown on this chart:

SPX 1 min - Impulse from July low:

For the moment, I've assumed we completed a double zig zag for wave (ii) of [c] at 1120.95. Please refer to the comments and 1 min chart 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 chart posted under Option 1 above.

Have a great weekend!

17:43 BST - SPX Update: Bearish Count

Here's an update to the chart of the bearish count which had us completing a double zig zag at 1120.95:

SPX 1 min - nested ones and twos or [1] down complete:

Above 1107.60 invalidates the i-ii. Above 1121.95 invalidates the whole count and I'll probably look to the near term bullish count of the continuing zig zag posted earlier. 

17:23 BST - SPX Update: Wave [c] of a zig zag

Here's an update of the chart I posted earlier for a potential continuing single zig zag from the 1 July low. I've adjusted the labels for the [b] wave from the earlier chart, to show it as potentially complete at today's low, but its possible its not and that the earlier labelling may be on the right lines. The labelling in this chart is invalidated below today's low, in which case, the earlier labelling may come into play:

SPX 1 min - wave [b] of minor 2 from 1120.05 high:

That wave ii label at 1098.10 may be wrong since the decline to that low looks like 5 waves, so wave ii may have more downside to go. It has to stay above the wave (ii) low at 1095.99 to remain valid, however.

If we take out that 1095.99 low then I'll probably look to the earlier labelling for this near term bullish count.

15:33 BST - SPX Update

Following on from the potentially bullish count (at least near term) posted in relation to the chart of Option 3 earlier on, here's the bearish case, although the alternate count likely involves more upside in wave [2] (I have to say that it doesn't look very nice as a wave [1] down when viewed on longer time frames):

SPX 1 min chart - nested ones and twos down or wave [1] down complete:

The nested ones and twos is invalid above 1107.60, while the complete wave [1] down is invalid above 1120.95. If that is taken out, we're likely in the continuing single zig zag shown earlier.

14:54 BST - SPX Update

With 1088.96 being taken out today, the main count shown on the chart of Option 3 (see last night's update) which had us in a single zig zag up from 1 July requiring a wave (iv) of [c] pullback to stay above 1088.96, is now invalid. However, beware of this alternative, that the 1120.95 high was only wave [a] of minor 2:

SPX 10 min chart Option 3:

The drop from 1120.95 would be wave [b]. This is the count I was originally looking at for this single zig zag count, and its still a possibility Something to be aware of until we take out the 1010.91 low.

11:07 BST - SPX Update: Something for the Bears

You'll see from the updates I've been posting (the latest was in last night's update) that there is a case for counting a corrective double zig zag move from the 1 July low as complete as at the high of 1120.95.

This 60 min chart (sorry, there's alot going on on this chart) does look rather bearish in support of that:

Firstly, we've got the pitchfork (orange lines), which has halted the advance so far, firstly to end wave w of the double zig zag, and, for the moment at least, to end the presumed wave y. 

Second, we've had the bearish cross of the 13 and 20 moving averages. Yesterday afternoon's rally tested the falling 13ma and failed. However, both those averages and price are above the 50ma. For the bearish case to gain momentum, we need to see them all drop below that 50ma.

Third, the RSI (14) is showing strong bearish divergence against the price highs at w and at y and the late rally yesterday, strong as it seemed, failed to move the RSI above 50.

Fourth, The MACD histogram has diverged against price pretty much throughout this move up. The MACD itself also shows definite bearish divergence against the w and y price highs.

The ADX line, which indicates the strength of a trend (the direction of the trend being determined by whether the green +DI line is above or below the red -DI line), was definitely weaker on the move up from x to y than it was on the move up from (i) to w. I like to see the ADX above 25 to indicate a strong trend - it barely made it above that figure on the rally from x to y.

If this is a corrective move (and not the very bullish alternative I showed in the last chart in this post) the blue correction channel should contain price. If we fall significantly below the channel, assuming we've had a complete double zig zag (and not a single zig zag which is being followed by an X wave) that ought to signal the end of the correction. However, the manner in which it falls will be important - it has to do it impulsively.

Possible signs that there may be more left in the rally:

- The MACD is still above the zero line. If the rally is over, it needs to drop below;

- The Slow Stochs is moving up. If the rally is over, it may not get too far above the 50 line.

Overall, the signs on this chart are more bearish than bullish. It doesn't preclude a further high (causing more bearish divergences) if the single zig zag is the relevant count. You'll see from last night's update, that count still looks like it needs one more new high above 1120.95. But this chart perhaps suggests that any new high may not get too far above the 1120.95 level. 

Let's now see if price can fulfill the bearish expectation, or will the bears once again grab defeat from the jaws of victory!