Wednesday, 4 August 2010

22:16 BST - SPX Update

Here's a close up of what I'm looking at from the 1118.07 low which I have labelled as wave (4) of [C] of a zig zag/second zig zag (see the after the close update):

SPX 1 min - from 1118.07 low:

The main reason I'm thinking that wave (5) is forming an ending diagonal is because of that wave from 1122.57 to 1128.75. At the moment, it doesn't look or count like an impulse, whereas the other two waves I've highlighted can be counted as 5 waves (indeed, I did count the first one as 5 waves in my update at 17:41 BST).

Even if I assume that wave (4) was a triangle ending at 1122.57, its still difficult to see an impulse at the moment.

Now, I've seen this before where price action can turn something that looks like that wave into an impulse, so I can't rule out the possibility that it will develop a more impulsive structure with further price movements.

For the time being, as mentioned in the 21:25 BST update, the invalidation point for the ending diagonal will occur if wave 5 exceeds 6.18 points. Until then or until the waves look more like an impulse, I'll assume the ending diagonal is playing out.

21:25 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.

The move up from the July low seems to be a single or double zig zag. It looks like we completed the 4th wave of [C] of the second zig zag today and so we should be in the final 5th wave up.

Once its complete,  then for Options 1 and 2 we would be starting a 3rd of a 3rd wave down at various degrees - both very bearish.  For Option 3 we would be starting minor wave 3 down - again, very bearish. For Option 4, we would be starting wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be starting wave (iii) of [c] of minor Y down - again, temporarily bearish. 

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.

I've shown  the double zig zag count on this chart. It remains valid on this Option provided we stay below 1131.23. If we exceed that level, there is still a bearish count in play (see what I have said under Option 1 on the 60 min counts page), but I don't think it would look very attractive and I think I would abandon this count if that occurs since the alternate shown under Option 2 on the 60  min counts page would look much better if 1131.23 is taken out.

If we're in the final leg of the second zig zag, we may be forming an ending diagonal for the 5th wave, assuming wave 4 ended at the 1118.07 low. The moves up from there seem to count as 3 waves, although there can be some ambiguity. If its an ending diagonal for the 5th wave, then I'd say we've seen waves 1 to 3 so still have one more up and down move to come.

Its possible that wave 4 was a triangle ending at the 1122.57 low, in which case, we would be in the early stages of the 5th wave up.

Here's a chart (the wave degrees are one higher than under this Option) showing the potential ending diagonal 5th wave and I've also sketched in the possible 4th wave triangle:

SPX 1 min - double zig zag from [B] of y at 1088.01:

You can see that if we completed the 3rd wave of the diagonal at 1128.75, it measures 6.18 points. So, the 5th wave of the diagonal must not exceed that number of points. If it does, then the diagonal is invalid and its likely that we are in a straight impulse wave up, either from the 1118.07 low or, if the triangle 4th wave is playing out, from the 1122.57 low.

The important levels to watch on the downside remain the low at 1088.01 and then the low at 1056.88.  Until those levels are taken out, more upside remains possible even on the overall bearish counts.

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 move up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would now be in wave (iii) of [iii] down.

On this chart I've also shown the double zig zag count. To remain valid, we need this to stay under 1131.23. However, even if we take out that level therefore voiding the [i]-[ii]-(i)-(ii), we could still be counted as being in a [i]-[ii] down from 1219.80. As explained on the 60 min counts page, that would not look at all bad under this Option (in fact, I probably prefer this now, even though we haven't yet exceeded 1131.23).

Since this double zig zag count is the same as that shown under Option 1, please refer to the comments and the 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. On this chart I've shown the single zig zag count, but the position is really the same as that shown under Option 1, namely, we appear to have completed the 4th wave of the [c] leg of the zig zag, so now we are on the look out for the 5th wave which will complete it. 

As under Option 1, the 5th wave may be forming an ending diagonal if the 4th wave ended at 1118.07. Or, it may be in the early stages of a straight impulse if the 4th wave was a triangle ending at 1122.57.

The levels to watch on the downside are the same as under Option 1, namely, 1088.01 and 1056.88.

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/triple  zig zag up from 1010.91 would be wave (ii) of [c]. With either of those complete, we would now be starting 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. An alternative  [i]-[i]-(i)-(ii)-i count is shown on this chart:

SPX 1 min - Impulse from July low:

For the moment, I've assumed we're in a single/double zig zag for wave (ii) of [c]. Please refer to the comments made under under Options 1 to 3  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 Option 1 so the comments made under that Option apply equally here.

If we do take out 1131.23, under this option there remains a bearish interpretation - it may just be completing a more complicated X wave before starting wave Y down. I've shown this as a possible alternate on the chart of this Option.

19:06 BST - SPX Update

On the bearish count which has a single or double zig zag top at today's high (see earlier posts), we really need to take out the 1116.76 low because with the essentially sideways action continiung, the possibility remains that we are still in the 4th wave of [C] of the zig zag or second zig zag. Here is a possible triangle sketched onto the bearish count:

SPX 1 min - zig zag/double zig zag complete or 4th wave still in progress:

17:41 BST - SPX Update

This count could be quickly invalidated, but if you wanted a good risk/reward short, this count would give it to you (updated from my last post):

SPX 1 min - top at 1127.75:

15:30 BST - SPX Update

Here's the most bearish count for SPX, showing the completion of a second zig zag (but it could apply to the completion of the single zig zag shown on the chart of Option 3 also) at today's high:

SPX 1 min - [X] to [Y] of a double zig zag from 20 July low:

And here it is close up (at one degree higher) showing the wave (3) high, wave (4) and today's wave (5) rally:

SPX 1 min - end of double zig zag from 3 Aug:

We need, however, to take out the wave (4) low at 1118.07 to avoid a possibly extending 5th wave and then follow that up with a decline that takes out 1104.32 and then 1088.01 as discussed in last night's update.

14:05 BST - Dollar Update

The dollar would look best with one more slight new low, I think, though its not impossible that it bottomed at yesterday's 80.469 low as shown in the alternate on this 60 min chart:

Dollar Index 60 min - close up from wave [iv] of C high:

You can see the bigger picture on the first chart in my post yesterday which shows the whole of the move down from the 7 June high. 

Until we see an impulsive rally, as explained in yesterday's post, the trend remains down.

13:30 BST - DAX Update

I'm starting to prefer this count for the bearish view on the Dax, which puts us in a [i]-[ii] down from the April high, rather than having us in wave [iii] down as I showed when I last looked at the DAX:

DAX Daily - from April 2010 high:

So, I would count all of the sideways action since the May low as a wave (x) triangle. We would now be in wave (y), which will be a 3 wave affair. You can already see a 3 wave outline on the daily chart, so wave (y) may be just about done. Obviously, it can't take out the 6341.52 high if it does have more upside to go. 

If we do exceed that 6341.52 high, then the bullish count comes into play and the rally from the 20 July low would be the start of minor wave A up in another zig zag.

However, taking out the April high doesn't leave only the bullish count. Here's the daily chart from March 2009:

Dax Daily chart from March 2009:

You'll see from the April high I've labelled another alternative. It makes the April high wave (a) of [v] within the expanding diagonal for minor C of the second zig zag up from the March 2009 low. If this is playing out then we'd need to see 5 waves up from the 20 July low, rather than the three we currently have, so there could still be more upside. Having said that, the alternative count for wave [c] of C could easily be a (w)-(x)-(y), in which case, the 3 waves up from 20 July that we can already see may be just about enough to complete wave [v].

Obviously, the DAX is closer to its April high than any of the other main indices I follow. I've explained before why a new high in the Dax doesn't preclude the bearish count on those other indices, so just because it makes a new high does not mean that those others are bound to follow.

Having said that, we can't preclude the possibility that the Dax is leading the way back up, especially since the bullish counts I have (see Options 4 and 5 on the 60 min counts page and long term counts 3 and 5 on the Long Term Counts page) all remain viable at this stage.

Still, if the Dax alone takes out its April high, the odds would suggest its lagging  to the downside, rather than leading to the upside, perhaps in a repeat of the 2007 top. We'll just have to keep a close eye on the important levels on the main indices. At some point, the picture will clear up - at least that's the hope.


10:01 BST - Long Term Counts Page updated

I've updated the charts on the Long Term Counts page and added some commentary.