Thursday, 5 August 2010

21:14 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. Either we completed the 4th wave of [C] of the zig zag/second zig zag as a triangle yesterday and the high of 1128.75 was the 5th and final wave, or today's low was the end of the 4th wave and we are now in the 5th wave up.

Once we have a completed move,  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. However, note the bullish alternate count under Option 4 below.

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.

On the chart of this Option, I've shown the count that has the double zig zag complete at 1128.75. 

Here's a chart (the wave degrees and labels relate to the single zig zag shown under Option 3, but the count into the high is essentially the same) showing the completion of the final leg of a corrective move up from the July low:

SPX 1 min - 4th wave triangle, then a top at 1128.75:

This is, of course, invalidated if we move above the 1128.75 high. In that event, we are probably still in the 5th wave of the (C) wave - you can see the detail of this under Option 2 below.

If we did top out at 1128.75 and have since seen the first 2 waves of an impulse down, we first need to take out the low at 1118.81. Then, to eliminate the possibility that we are in a very elongated 4th wave, we'd need to take out the high at 1104.32, which is the 1st wave of (C).

After that, 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 (for example, on the single zig zag count, we may only have completed the 1st wave of (C) until 1088.01 is taken out).

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).

However, I'm showing here the count that has us still in wave (5) of [C] of the second zig zag. Here it is in close up:

SPX 1 min - wave (5) of [C] of the second zig zag:

We obviously need to hold above 1118.81 for this count as labelled to remain valid. If we take that out, its possible we may still be in wave (4) until we take out the wave (1) high at 1104.32, but it may be unlikely given that it would make wave (4) very large in time, compared to wave (2). However, its something to bear in mind until we drop below the lower levels mention under Option 1 above.

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 Options 1 and 2, namely, we may have topped in minor 2 at 1128.75 or we may still be in wave (v) of [c]. Please refer to the 1 min charts posted under those Options.

The levels to watch on the downside are the same as those set out under Option 1, namely, 1118.81, 1104.32, 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've completed a single/double zig zag for wave (ii) of [c], but please bear in mind the alternate shown under Option 2, which would entail a further new high. 

The levels to watch out for are the same as referred to 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 Option 1 so the comments made under that Option apply equally here, as does the possibility of further upside, as outlined under Option 2 above.

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.

20:13 BST - SPX Update

Last chance for the immediately bearish count - taking out 1128.75 invalidates it:

SPX 1 min top at 1128.75:

18:58 BST - SPX Update

Getting above yesterday's high would likely affirm something along the lines of this count:

SPX 1 min - in wave (5) of [C]:

18:52 BST - SPX Update

A move above today's high at 1125.78 will eliminate this bearish count (but only a move above yesterday's high invalidates the overall immediately bearish count altogether - we could still be in wave ii until then):

SPX 1 min i-ii-[1]-[2] from 1128.75:

16:08 BST - SPX Update

If you're short, you want today's low to be taken out to avoid this count:

SPX 1 min - in wave (5) up:

15:50 BST - SPX Update

If we have topped, this wouldn't be a bad place to test the water. You'd have two exit points, depending on risk tolerance - above today's high or above yesterday's high:

SPX 1 min 

15:07 BST - SPX Update

Here's a possible count if today's decline is just part of the 4th wave of [C] of a zig zag or second zig zag (this chart uses the degrees shown on the chart of Option 2):

SPX 1 min - 4th wave in progress, 5th wave to come:

Again, this remains possible until we take out 1104.32.

14:42 BST - SPX Update

The ending diagonal as I had it labelled yesterday has been invalidated because today's decline has violated the low of what would have been the 2nd wave in the diagonal. This is suggesting the end of the zig zag/second zig zag. If that's so, here's a possible count, using the 4th wave triangle I mentioned yesterday (this uses the degrees shown on the chart of Option 3):

SPX 1 min - corrective top?

I managed to find an impulse wave up from what I have as the 4th wave the C leg of the zig zag/second zig zag.

Taking out yesterday's high invalidates this count for a top. If we have topped, we want to see 1116.76, 1104.32 and 1088.01 taken out in impulsive fashion. Until we take out 1104.32, this could still be a 4th wave.

11:45 BST - Dollar Update

Following on from my earlier post, here's an update of the 10 min dollar chart:

Dollar index 10 min:

It looks very much like we may see that lower low to complete wave (v) of [c], though today's drop could be a  2nd wave correctcion if we saw 5 waves up from the low marked [X] (a truncated 5th within (v) as discussed in the earlier post) with the new high posted today. If you were inclined to risk a long position here, you'd want to be out below 80.469.

The safest course remains waiting for an impulsive rally that pulls back in 3 waves. Now, we probably want to see any such rally get above the high I have as wave iv, 81.128.


11:32 BST - Dax Update

Following on from my post yesterday, here's an update on the Dax in the light of its new high above the April high. I've revised the bearish count to something that I think looks a little better, but it doesn't make much difference to the bearish alternative I showed yesterday in the event of a new high:

Dax Daily from March 2009:

It has us now in minor wave C of intermediate wave (Y). Here's a closer look on the daily chart:

Dax Daily from April 2010 high:

Wave C appears to be in its 3rd wave. If wave C is forming as a straight impulse, there could be alot more upside to go. If its forming an ending diagonal, the upside could be more limited.

Here it is close up on a 15 min chart from the high of the [b] wave within the triangle:

Dax 15 min from April 21 June high:

The labelling of [iv] of C is only provisional at the moment - we may still be in [iii]. If the next pullback drops below the high of wave [i], we could have seen a completed impulse up, or we may just be forming an ending diagonal. To be a valid ending diagonal, wave [iii] must not exceed 6406.79.

The position of the peak in the MACD shown by the vertical blue line, may indicate that where I have wave [iii] labelled is the correct position, but we'll have to wait and see.

With the trend still firmly up on this index, the safest short opportunity would be once we see an impulsive 5 wave decline followed by a 3 wave pullback. Until then, the risk of higher highs remains and will likely do so in fact until the B wave low at 5906.04 is taken out. Obviously, if we are in the alternate count shown, that is much more bullish than the main count, and that alternate remains viable until 5906.04 is taken out, assuming wave (X) was a triangle.

1:20 BST - Dollar Update

Zooming in on the 60 min dollar chart I posted yesterday, looking at it from what I have as the wave (iv) of [v] high at 81.977, it still currently looks like we might need a new low to complete wave [v]:

Dollar Index 10 min:

The first move up from where I have wave iii to where I have [W] of iv doesn't look impulsive. Although the rally today was reasonably impressive, it looks like it could just be part of wave iv. Wave iv may have another high to come, or it may have completed at the high of 81.106.

Having said that, you can see the alternative, that wave v ended with a truncation where I have labelled wave [X] of iv, in which case, a new high overnight above 81.106 would give us a nice 5 waves up from that low. Its also possible that we have had 5 waves up from that low but that the 5th wave of it truncated, but that wouldn't be very satisfactory for the first impulse up if we've just completed intermediate wave [2] down. Still, it can't be ruled out.

Hopefully we'll get some clarification of the correct labelling overnight or maybe early on tomorrow.

00:08 BST - SPX Update

This updated 60 min chart isn't inspiring me with confidence on the long side:

SPX 60 min:

Price continues to crawl up the median line of the pitchfork (orange line), but remains below it and momentum continues to wane.

The RSI is still showing bearish diverence against each new price high. The MACD hsitogram couldn't even get above the zero line despite today's rally. The MACD itself continues its series of lower highs against higher highs in price. The slow STO couldn't get into overbought territory on the late afternoon high, and is diverging bearishly againt price. The ADX line continues to signal a weak trend, again, despite the higher price highs.

This chart too doesn't help:

SPX 60 min - diverging indices:

So far, only the Dow has made it above the 21 June high (the Transports did briefly poke above it on 27 July but reversed sharply and has since been unable to get back above it).

Of course, divergences like those shown on these two charts can be worked off in an instant, but for the time being,  its not too convincing on the long side.