Friday, 6 August 2010

23:40 BST - SPX Update - wave (4) and (5) of [C] to complete a zig zag or double zig zag

Here's the count I didn't show in tonight's update, where we bottomed in wave (4) of [C] at today's low and started wave (5) up. You'll have to refer to the bigger picture charts to see how deep a retrace wave (4) was (if we had dropped below 1104.32, this possibility would have been invalidated). However, the main point of showing it is to show the count from today's low:

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

If its an impulse, we may well have completed 3 waves of it so only one more up and down to go. If this is right, it may not get much above the high at 1128.75 and may even truncate, unless wave 5 is going to exceed a 1.618 extension of wave 1 and even that assumes that wave 4 doesn't retrace more than 23.6% of wave 3.

Even if the wave 3 I've labelled were to go a bit higher, to about 1122, where it would be a 2.618 extension of wave 1, the same point arises, that wave 5 would have to exceed a 1.618 extension of wave 1 to get above 1128.75.

And of course, although I'm showing a bullish count for the move up from today's low (which could be applied to any of the bullish options I've been showing today - see tonight's update for a summary), at the moment, it counts as only 3 wave, so could be all (or most of) a 2nd wave correction - see the second and third charts in tonight's update.

As I said in tonight's update, if the bearish counts are playing out, we need to see an immediate drop on Monday. Taking out the low at 1107.17 will start to raise questions about the bullish counts, but will not invalidate them. For the bearish case to gain credence, we need to take out the 1088.01 level (the count in the chart above will be invalidated if we drop below 1104.32 before making a new high or before we get 5 waves up from the 1107.17 low and the ending diagonal [c] wave will be invalidated at about 1096).

Lets' see what happens.

21:49 BST - SPX Update

The Options referred to  below are the different ways to count the move down from 1219.80. There are 5 that I'm following. I won't post individual charts of each tonight, just one for Option 2. You can see the larger context of each on the 60 min counts page and of course you can refer back to last night's update.

The move up from the July low can be counted as a single, double or triple zig zag, assuming it is a corrective move. Following today's action, it remains unclear whether or not we've yet seen a top to the move up from the July low.

Once again, we have to await further price developments.

Here's the chart of Option 2:

SPX 10 min chart - Option 2:

I've shown the count that has the double zig zag complete at 1128.75. Its also possible that we had a truncated top at 1126.56. 

Here's a 1 min 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 close up the completion of the final leg of a corrective move up from the July low at 1128.75 and ones and twos down from there:

SPX 1 min - top at 1128.75, ones and twos down:

And here's a chart showing the truncated top at 1126.56:

SPX 1 min - truncated top at 1126.56:

Both of these would be invalidated if we move above the 1126.56 high. The first one could survive as a one-two, with two being an expanded or running flat, provided we don't take out 1128.75, but I can't say I like this. If one of these counts is playing out, I think we need to see the market drop pretty much from the outset next week. The retracement of the move down from the 1126.56 high has nearly reached the 78.6% mark and the bottom of the gap down today, so now would be a good time for it to drop.

I think that if 1126.56 is taken out, we'd have to look at the bullish counts. Here are some possibilities:

SPX 5 min - triple zig zag:

I mentioned some possible targets for the end of the third zig zag before today's sessions - see here. Preferably we need to stay above 1107.17, until a new high is made, but the count won't be invalidated until we break below 1088.01.

SPX 5 min - single zig zag with ending diagonal wave [c]:

Assuming wave (iv) ended today at 1107.17, wave (v) must stay below 1147.91 for the diagonal to remain valid. Again, we wouldn't want to see a drop below that low before a new high is made, but this count won't be invalidated unless we drop to the blue dotted line before making a new high. That's approximately in the 1096 area on Monday, depending on when we hit it.

Another possibility (not shown) is that today's decline was the 4th wave of [C] and we are now moving up in the final 5th wave of [C] in a single zig zag. The 4th wave was a deep retracement, but does not break any rules, so is perfectly valid.

Don't forget also the much more bullish count that I've been showing as a bullish alternative under Option 4. On that count, the decline today would have been wave ii of (iii) up within minor A up. Here's the 1 min chart for that:

SPX 1 min chart - bullish alternative under Option 4:

The first level to watch which might indicate a problem with this count is 1107.17, but it won't actually be invalidated until we take out 1108.01.

So, the market had an opportunity today to provide some indication of whether or not we have seen a corrective top to the move off the July lows, but failed to do so once again. So, we have no choice but to continue to wait and see and all we can do is to monitor the levels that are relevant to the potential counts until one or other is eliminated or becomes unlikely enough to discount it.

Have a great weekend!

20:20 BST - SPX Update - ending diagonal wave [c] of a zig zag

This is an update of the chart I posted earlier for an ending diagonal wave [c] in a single zig zag from the July low:

SPX 5 min - ending diagonal [c] of minor 2:

It does look nice, I think. The odds of it being in play increase once we take out that x wave high.

20:09 BST - SPX Update - Remaining counts for the immediately bearish case

Well, that didn't work either. So these are the options for the immediately bearish case of a zig zag/double zig zag that completed at 1128.75:

SPX 1 min - top at 1128.75:

If this rally is wave iv then we must not end wave iv above 1118.81. If it does, then the alternative count comes into play and I'd count a truncated end to wave [c] of minor 2 at 1126.56. The alternative count would obviously be invalidated above 1126.56 and focus would turn to the triple zig zag count I posted earlier and the other bullish possibilities.

19:43 BST - SPX Update

Well the triangle was busted, but there may still be a triangle in there if this is a 4th wave:

SPX 1 min - double zig zag complete:

Remember, ending wave [4] above 1115.29 invalidates this as wave [4] of iii.

18:26 BST - SPX Update - wave [4] triangle?

We might be in a 4th wave triangle here. The lines that I've drawn in may need adjustment as price action develops. The one certain thing is that if its wave [4], it mustn't end above 1115.29, the wave [1] low:

SPX 1 min - complete double zig zag count:

18:19 BST - SPX Update - 5 min pitchforks

The pitchforks on the 5 min chart have done a good job of marking out the short terms trends and providing some warning of at least a brief end to the upward moves:

SPX 5 min pitchforks:

The blue one was the first that I drew and you can see how price ran up above the median line from the 30 July low, fell right back down to the lower line but bounced off it in a significant move up. That created the green fork.

When price broke below the median line of the green fork, it was a warning that the steep uptrend might be ending. It found support on the upperline of the blue fork, but instead of heading back up to the median line of the green fork, price just crawled up the blue fork, collided with the lower line of the green fork, then broke both of them. 

A backtest of the lower line of the green fork failed and price wasted no time dropping down to the median line of the blue fork. It found support there and rallied, but dropped back to the blue median line once again, had a very weak bounce but then fell below it. All it could then do was crawl up it for a short time before falling into the middle of the lower section of the blue fork.

It bounced from there in what looked like a potentially potent push up. The low it put in created the yellow fork. As potent as the bounce may have appeared, it was short-lived and price quickly came back to the lower line of the yellow fork. It was able to bounce from there but failed to reach the median lines of the blue and yellow forks. Instead, it fell back to the lower line of the yellow fork, tried to get back above it, but ultimately failed. 

The break of the lower line of the yellow fork quickly led to the break of the lowerline of the blue fork, and an attempt to get back above it failed. I had to wait a while before I was able to draw in the red fork, but that became possible after yesterday's close.

You can see that the bounce after the open today occurred at the median line of the red fork. However, as we saw, that was short-lived and we have now dropped through the median line. If the current bounce is only a correction in a downtrend, we shouldn't see price get too far above the median line, or if it does, it should come back down quickly.

We ought to see a drop to the lower line of the red fork - and that seems to be confirmed by the bearish wave count. 

If any move above the median line ends up finding support on it, then that should be a warning that we might see some more upside - given the bullish wave counts, that could be quite substantial, so this may be something to watch.

17:15 BST - SPX Update A possible breached trend line to watch

Drawing a correction channel based on a line connecting the July low with the x wave low in my double zig zag count shows a slight breach of the lower channel line today - not significant, but it now seems to be backtesting the line and, possibly failing:

SPX 10 min chart:

As I said, its not significant enough to mean anything yet and, of course, we still have important levels below that remain intact, so preventing the ruling out of the bullish counts. However, its worth keeping an eye on since, in theory, the breach of the correction channel should mark the end of the correction.

16:29 BST - SPX Update - Possible diagonal for [c] in a single zig zzg

As well as the triple zig zag count that we need to be wary of if short, here is another one to consider.   If,  on the single zig zag count (see the chart of Option 3), wave [a] was actually at the 1099.46 high and wave [b] was at the 1056.88 low, we may be forming an ending diagonal for wave [c] and we would likely be in wave (iv) of the diagonal:

SPX 5 min - single zig zag with [c] as a diagonal:

Its just something to be aware of. 

Its invalidated if we drop below the blue dotted line.

15:56 BST - SPX Update

The triple zig zag count I posted this morning remains on the table (with some slight label adjustments!) until 1088.01 is taken out:

SPX 1 min - triple zig zag:

15:49 BST - SPX Upate

For the completed zig zag/double zig zag count, I'm tempted to count today's action like this (you'll see I've move the end of wave ii so that [C] truncated):

SPX 1 min - completed double (or single) zig zag:

We need to take out those levels mentioned in last night's update to increase confidence in a top - the 1088.01 level remains the main one at this stage.

14:25 BST - Dollar Update

This is more like what I was hoping to see from the dollar (see my last post here):

Dollar Index 15 min chart:

This chart shows the move from what I have labelled as wave (iv) of [v]of minor C within intermediate wave 2 (see the first chart in this update for the bigger picture).

We could now be in the final stages of the decline, unless something considerably more bearish is playing out. 

I've labelled today's high as wave [2] of v of (v). Its possible that where I have [2] is actually the end of wave iv, with [Y] of iv being a more complex affair than I have labelled. That would mean  its possible that from where I have wave [2] of v is actually all or part of v - just a straight line thrust down to complete the decline. 

However, I've said before, with the trend firmly down, its sensible to wait for something impulsive to happen to the upside before looking for a long position - the risk is that something much more bearish is playing out, so until we see something impulsive to the upside, the risk of further downside remains high.


13:01 BST _ SPX 60 min chart Update

I'm still rather wary on the long side given how this chart continues to look:

SPX 60 min:

You can see why from the comments on the chart (and the comments made in relation to this chart previously) it seems to be warning that further upside, if any, could be limited. Of course, it may only take one forceful rally to eliminate the divergences highlighted - that's quite possible with the jobs report coming out today and there are wave counts that allow for this (see, for example, the bullish alternate shown under Option 4 in last night's update and the triple zig zag count just posted).

12:59 BST SPX Update - triple zig zag count

I was about to delete my chart of a triple zig zag up from the 1 July low, but when I looked at it again, I thought it actually looks OK once more, with a bit of adjustment to the third zig zag labels.  Here it is capturing the end of the first zig zag (wave (w)) and the second and third zig zags:

SPX 1 min - triple zig zag in progress:

It does allow for more upside in wave [C] of the third zig zag. If wave [C] is going to equal wave [A], it'll get to 1158. If its .618 x wave [A], that's at about 1143.

However, if you look back at this count, which I last showed on the chart of Option 2 on 3 August, the [A] waves are alot shorter than the [C] waves - within w [A] was .236 x [C]; within y, [A] was .50 x [C]. It may be that if we've had a decent sized [A] wave on this third zig zag, that wave [C] ends up being much shorter than wave [A] and that would fit with the bearish signs showing up in various time frames.

Also, wave y was about .707 x wave w. If wave z is .707 x wave y, that targets about 1133/1134 and at that level, wave [C] of z would be about .382 x wave [A] of z.

Obviously, none of this means that the market will turn at any of these lower points rather than the higher ones identified above, but they just provide levels to watch for potential reversals if the market does continue the rally from 1 July.