Sunday, 1 August 2010

11:49 BST - SPX Update

Here's an updated 60 min chart (see the post at 11:07 BST on Friday) which, in my view, remains largely bearish:

SPX 60 min:

You can see that Friday's initial drop took price down to the lower line of the blue correction channel. However, as we saw, it quickly recovered and made an attempt to get above the 20ma, but failed. 

We still have that bearish cross of the 13ma and the 20ma, and the 13ma has now fallen below the 50ma. However, the 50ma is rising and we really need to see it fall for a further sign that bearishness rather than bullishness prevails. At least the 200ma is falling.

Once again, despite the recovery on Friday, the RSI (14) failed to get above the 50 line and the same goes for the slow STO. The MACD histogram is sloping up, but remains under the zero line. The MACD itself is also still under zero, but looks like it could be turning up. The bearish case requires that it perhaps form a bearish hook and turn back down again.

The falling ADX line and the criss-crossing +DI and -DI lines signify a lack of trend as the market has moved largely sideways.

So, overall, this chart still looks more bearish than bullish.
The daily time frame largely concurs, in my view:

SPX Daily:

The large blue pitchfork is the one that marked out the uptrend from March 2009. You can see that price twice fell through the bottom line in May and then again in June, but each time managed to get back inside the blue fork. However, since the breakdown into the July low, it has now failed twice to get back inside the blue fork.

However, a new bullish fork shown in dark green, has formed, which may mark out the early stages of a new uptrend, if that is what we are going to get. But, the two touches of its median line have failed (they coincide with the attempts to get back inside the blue fork) and the market has backed off from it. 

However, that's not to say that we're not just seeing a repeat of what happed in the early stages of the March 2009 uptrend, where price struggled to get above the median line of the blue fork before breaking above it and continuing its move up - see the area higlighted in yellow on the chart. 

And you'll note the larger bullish lime green fork. Its median line appears to cross the median line of the dark green fork and the upper line of the declining red fork in the 1175 area, which happens to be a 78.6% retracement of the decline from 1219.80 - the level we would normally look to for a retracement if we have seen a leading diagonal minor wave 1 down to the July  low (see Option 3). So, its quite possible that price continues to crawl up the median line of the dark green fork until it hits the median line of the lime green fork and the upper line of the red fork before we see prices roll over.

The indicators are not necessarily supporting such a move. however. The CCI (144) is having a hard time moving up to, let alone above, the zero line. The MACD histogram has already set in with bearish divergence against the highs in price in mid and late July. The RSI (14) is above 50, but not looking like it can sustain it. Although the MACD itself is above zero, its not yet very convincing and looks more likely to roll over than to contiune moving up at the moment. The slow STO has double topped and fallen below 80. So far, the 200ma has held back the rallies.

All in all, in my view, those indicators suggest a top is close if not already in. But we can't trade the indicators and if we are now in a larger decline, we need to see price prove it.

Firstly, we need to see price drop below the median line of the bearish red fork and for that line to provide resistance to any rallies. We then need to see it drop out of the dark green and lime green forks, as well as out of the red fork itself in an acceleration to the downside. That really, is what we should expect to see if we have entered a 3rd of a 3rd down or minor 3 down (see Options 1, 2 and 3).

Here's a look at the weekly chart updated from a week ago:

SPX Weekly:

The picture hasn't changed significantly. The attempt to rally this week has been held back by the 20ma and its clear from the candle that formed this week that the bears exerted control in the end to push price right back down to the median line of the bearish red fork.

However, you can see the bullish green bullish fork that's lurking, so for the bearish case, we need to see price drop below the median line of the red fork and accelerate down out of it and out of that green fork, taking us below that 1010.91 low from 1 July.

In my view, all three of the above charts have more bearish than bullish features, but more upside just can't be ruled out as yet. 

You'll see from Friday's update that there is an immediately bearish count which shows a double zig zag top at 1120.95 (see Options 1, 2, 4 and 5). There is a near term bullish count that shows a single zig zag still in progress, with wave [c] possibly having started on Friday (see Option 3). There is also a very bullish count, which has us at at the start of a minor wave A up to new highs (see the bullish alternate count under Option 4).

On the smaller time frames, here's what I we will be on the look out for in terms of price action:

Immediately bearish count:

SPX 1 min - double zig zag completed at 1120.95:

This is the count shown for Options 1, 2, 4 and 5.

Either we drop at the outset and take out the low at 1088.01, having completed a (W)-(X)-(Y) wave [2] correction on Friday, (see the black line) or we have another slightly higher high above Fiday's high making wave [2] an (A)-(B)-(C) correction, and then we drop hard and take out the 1088.01 low (see the red dotted line).

As long as 1088.01 remains intact, the risk of higher prices remains. Taking it out doesn't rule out higher prices since on the continuing single zig zag count, we may still be in wave [b], as I mentioned in Friday night's update. However, we may get clues from the manner of any decline below 1088.01 as to whether a continuing wave [b] in a single zig zag can be ruled out or not at that stage (I talked about this on the 60 min counts page which I updated yesterday).

Near term bullish count:

SPX 1 min - continuing single zig zag:

This is the count shown on the chart of Option 3.

If we've started wave [c] up, the blue line marks the ideal path we would see price follow. However, the market doesn't always signal its intentions so clearly and, as noted on the chart, if the move up from 1094.09 to 1106.44 remains as three waves and price falls below 1094.09, its still possible that wave [c] is in progress since wave (ii) may just be forming an expanded flat.

Also, as noted above and on the 60 min counts page, even if we take out the 1088.01 low, this single zig zag count could still be playing out, with wave [b] still in progress, possibly all the way back down to 1010.91, so much may depend on the way in which any decline occurs. On the bullish side, any rally above 1120.95 brings into play not only the continuing single zig zag count, but also the more bullish count shown on the chart of the bullish alternate under Option 4 which also remains a possibility until we take out 1010.91.

So, both bullish and bearish possibilities continue to be viable. At present, the real invalidation point for the bullish counts as currently labelled remains well below the market at 1010.91. As price action develops, we may be able to identify invalidation points closer to the market, but they may not necessarily be conclusive. The possibility is that market action will be such that we will have to continue to keep in mind the bullish  counts for a while yet even if we do see declines below Friday's low. Still, that's trading.