Wednesday, 11 August 2010

21:41 BST - SPX Update

The Options referred to below are different ways to count the move down from 1219.80 to 1010.91 and you can see them on the 60 min counts page, which will put the charts below into context.

The 10 min charts below show various ways to count the rally from the 1010.91 low on 1 July in the context of the larger picture shown on those 60 min charts.

On the charts of Options 1 and 2, I'm showing a single zig zag. On the chart of Option 3, there is a triple zig zag,  on the chart of Option 4 there's a double zig zag and on the chart of Option 5, there is a single zig zag with an ending diagonal for wave (c).

Here are the 10 min charts:

Options 1 and 2 - from 1010.91, a double zig zag:

I'm still only showing the 10 min chart of Option 2 since the counts are now the same under both these Options, namely, a single zig zag which is complete at 1129.24. Here's a more zoomed in look on the 1 min chart I've been posting:

SPX 1 min:

I've amended the labelling slightly from earlier, but overall, the bearish count I showed at the end of yesterday seems to be playing out, so far.

We've taken out three of the levels I mentioned in last night's update, so excluded the near term bullish counts that remained while those levels were intact. 
However, for the moment, the main level I was watching, 1088.01, remains - but only just.  Taking out 1088.01 would provide a higher degree of confidence in a top since that's the last low that has to survive if wave c is going to extend. on this labelling.
If the labels on the 1 min chart above are correct however, we should take out 1088.01 very soon.

However, taking it out doesn't mean we can assume that  its all down from here. There are still bullish counts on the table - see under Option 4 below. So we just need to keep monitoring important levels as the price action develops to try and get an early warning that a bullish count is more likely to be playing out and that this count is wrong.

On the labelling in the 1 min chart above, if we have completed or nearly completed wave [3] down, the next retracement would be wave [4]. Wave [4] cannot end above the wave [1] low at 1111.58, so, if we retrace up to that level in an assumed wave [4], that may well be an early warning that something is amiss with the bearish count.

It won't be conclusive, because we could be in the [1]-[2]-(1) count I had on the 1 min chart earlier, with wave (1) of [3] being the wave that is complete or nearly complete. In that case, we could retrace all the way back up to 1127.16 and the bearish count could stand -it wouldn't be very pretty and I think if we were to get such a retracement, we'd have to be very cautious of the risk that the action was telling us that the bearish count is not in play.

Nevertheless, from an elliott wave stand point, 1111.58 and 1127.16 are the levels to watch to the upside.

To the downside,  the level we need to take out to dismiss the bullish count shown below is 1010.91.

Option 3 - from 1010.91, a triple zig zag:

This too, can count as complete at 1129.24 and that's how I've labelled it for the time being. Of course, 1129.24 must remain intact if that is the case.

The count from the high at 1129.24 is the same as shown under Options 1 and 2 above, so please refer to the 1 min chart posted above and the comments there about the levels to watch.

Option 4 - from 1010.91, a double zig zag:

This double zig zag can also count as complete at the 1129.24 high. The count from there is the  same as the count from that level under Options 1 and 2, so the comments made there apply here also.

Here it is on a 1 min chart:

SPX 1 min - Option 4, bullish alternative count:

Technically this remains valid as labelled since we haven't taken out the 1088.01 low. However, it may be more likely that wave (ii) is forming an expanded flat as mentioned in my earlier post today, or that we have seen a leading diagonal up from the July low as shown in this chart which I've updated from that earlier post:

SPX 60 min - bullish alternative leading diagonal wave A:

You can see that I've labelled the 1129.24 high as wave A, but it could be wave [i] of A.  Whatever it is, the retracement could be almost done as a zig zag.  However, a normal retracement of a diagonal is considered to be 78.6% - that would take us down to about 1036. Having said that,  in elliott wave terms, once we can count 5 waves down from the high that I've labelled (b) of B, we should be on alert for a rally back up in C or [iii] of A, regardless of whether or not we have reached the 78.6% retracement.

Obviously, any retracement must stay above 1010.91 for this count to remain valid.

Option 5 - from 1010.91, a single zig zag with an ending diagonal for wave (c):

A complete ending diagonal can be counted into the high at 1129.24. I've labelled it as such. Taking out 1107.17 today has precluded the possibility of a continuing wave v.

So, the count down from 1129.24 is the same as for Options 1 and 2 so please refer to the 1 min chart and the commentary there as they apply here also.

19:45 BST - SPX Update - 60 min chart

This is the 60 min chart I've been posting since 30 July highlighting bearish signs that seemed to be appearing, warning of a potential end to the rally from the 1 July low (you'll find the most recent posting of it here) :

SPX 60 min:

These bearish signs seem finally to have played out in price action. 

However, you'll see that we've now come down to the bottom of the first area of support at 1088 which is also the lower line of the downward purple pitchfork  and the 200ma - not surprising then, with such a confluence of  support areas that today's down move has been stalling in this area for a couple of hours.

The indicators may be signalling a bounce could be due - you can see them highlighted by yellow circles: the RSI is at 30 and looking like it might turn up; the MACD histogram looks like the latest two bars have formed   higher lows; and the Slow Sto looks like its curling up from oversold levels.

These aren't necessarily buy signals (if tempted to have a punt on the long side, I'd drill down to a much smaller timeframe to find an entry with a tight stop), just perhaps warnings to be prepared for a bounce while these indicators work off their currently oversold conditions. If things are extremely bearish, they'll do that without much of a bounce in price, but its quite possible that they just stay oversold and price continues to tumble.

For the moment at least, price action and internals suggest that long positions are risky. Of course, in recent weeks, things have had a habit of turning around sharply just when it looked like a new downtrend had begun, so we can't rule out a sudden turn around. 

When we do get a bounce,  much will depend on the way it behaves - if looking for further downside, we don't want any bounce to look too impulsive. Of course, any corrective bounce needs to be in 3 waves  and preferably, if today's low is wave (1) of [3], a bounce will not get too much above the 61.8% retracement level at around 1113. If its wave [4], then it has to stay below 1111.58 (the wave [1] low) and preferably it should stay around the 38.2% retracement level at about 1103.

Three wave bounces into these areas may be worth shorting given the internals, but of course, stops are vital in case the bounce turns into something more bullish. Of course, these levels will change if we drop further before any significant bounce, but you get the idea.

17:14 BST - SPX Update - the bullish count

The bullish case is down, but not out at the moment. The main bullish count that could lead to new highs above 1219.80 is explained under Option 4 on the 60 min counts page and shown  close up in last night's update. Here's how the count shown in last night's update looks at the moment - I've updated it to take account of today's decline:

SPX 1 min - bullish alternative under Option 4:

If we take out 1088.01, this [i]-[ii]-(i)-(ii)-i-ii count is out. We could still be in an expanded flat wave (ii) however - that would only be invalidated below 1056.88.

If we were to take out 1056.88 as well (perhaps not today!), then this bullish alternative would need to be adjusted to the leading diagonal possibility I referred to last night, which always has to be considered when you see what might look like a series of ones and twos. Here it is on a 60 min chart:

SPX 60 min - bullish alternative under Option 4: leading diagonal:

As noted in last night's update, this count would stand until we take out 1010.91, so the bearish case could still disappoint until that level goes.

You'll see from the chart that the leading diagonal could be all of wave A of the third zig zag from the March 2009 low (see the alternative count on the second chart on the "Zig Zag from March 2009" page for the bigger picture), or it could just be wave [i] of A. The latter would obviously be very much more bullish.

The bad news for the bears is that even if we take out 1010.91, it doesn't mean we're on our way to zero. You'll see from the page entitled "Impulse from March 2009" that the count shown there can accommodate a decline below the 1010.91 low in a wave (2). This is something to be on guard for because if we take out 1010.91 and it turns out that this is the correct count, it could catch alot of shorts on the wrong side.

16:42 BST - SPX Update

Here's an update of the 1 min chart posted earlier:

SPX 1 min:

I'm showing a completed wave (1) of [3] down, but this could be wave [3] itself - its done enough to count as wave [3] and has left enough room for a wave [4] correction which doesn't have too much risk of overlapping wave [1].  

I'm not sure yet which to favour but if we take out 1111.58 (wave [1] low) today's low can't have been wave [3] and its more likely its wave (1) of [3] as suggested by the main labelling.

Obviously, there's a possibility that we still haven't bottomed, but it can be counted as a complete 5 waves down from 1126.16, so that's what I've gone with for the moment.

If we haven't yet bottomed, the drop from 1126.16 would be a 2.618 extension of the drop from 1129.24 to 1111.58 at about 1081. If we drop that low without a retracement first, I'd be more inclined to count the drop from 1126.16 as wave [3].

15:16 BST - SPX Update - 1 min chart

For the bearish counts which have us having topped at 1129.24, here's the 1 min chart I posted yesterday brought up to date with today's drop. I've amended the degrees for the decline from 1127.16 to show us in only wave (1) of [3] at the moment. If its right we're possibly in wave 4 of (1) (but we could still be in wave 3). If we're in wave 4, I've shown the retracement levels and, of course, we can't end wave 4 above 1119.42:

SPX 1 min:

Of course, its not impossible that today's low is wave [3] and we now go sideways in wave [4] - if this is playing out, we can't exceed the wave [1] low at 1111.58.

Please also remember that bullish possibilities remain until we drop below 1088.01 - see last night's post for details.

11:36 BST - Dax Update - Possible top in the Dax?

In my last post on the Dax, there seemed to be a possibility that a top could be near, although it was by no means certain. Since then, we did make another new high, as was expected under the elliott wave count, but it was not much higher than where we were at the time of that last post.

In the light of subsequent action, I've relabelled the 15 min chart to show a straight impulse wave up from the minor B wave low at 5906.04 to the current high at 6386.97. Please refer to the previous post for the daily charts and a wider view of the 15 min chart - the one below zooms in to look at the move from the minor B low:

Dax 15 min:

You can see that from the current high at 6386.97, there appears to be 5 waves down, followed by what has to be a corrective retracement up to 6356.41 (since its now dropped below the low from which it started).

At the moment, this could just be a correction of the rally from the minor B low if wave C is extending or if the bullish alternative I referred to in the previous post is playing out, where that low is wave (X) preceding another zig zag up.  In this case, the high at 6386.97 could be  [i] of C or it could be minor A up or just [i] of A.

As I mentioned in that last post, assuming that wave B, or (X) on the bullish count, was a triangle as shown, we need to drop below the end of the triangle at 5906.04 in order to avoid the rally from there being only part of minor C on the bearish count or all or part of minor A up on the bullish count.

Until we take out that low, the risk of a larger C wave on the bearish count and the bullish count remain on the table.

Assuming we've topped, if we're in wave [3] of iii down on the bearish count, as my labelling speculates, a wave [4] of iii retracement must not end above the wave [1] of iii low at 6275.32. Taking that out on an assumed wave [4] will be a sign that this count may be wrong and that wave C is extending or that the bullish count may be taking hold.

If we get [4] and [5] down to complete wave iii, I'll then be watching the wave i low at 6244.69, since a wave iv retracement must not end above that level.

So, the bearish count is starting to look OK at the moment, but is not assured. We just need to keep an eye on the levels mentioned above and hopefully, doing that will keep us on the right side of things. If waves don't follow through as expected for the bearish count, that's a warning that should be heeded given that until we drop below 5096.04 on the labelling I have, there could be more upside to come, even on the bearish count and the bullish count remains very much alive.

7:31 BST - Dollar Update

Currently, the dollar looks like 5 waves up from the low at 80.085, followed by 3 waves down to the 61.8% retracement level which I mentioned in my previous post. From where I have marked wave ii on the 20 min chart below, it looks like 5 waves up, which could be wave [1] of iii:

Dollar 20 min:

While its starting to look like the dollar may have bottomed at 80.085, I think its too early to disregard the risk of further downside. There are various possibilities which I mentioned in my first post yesterday and on the Dollar page (see menu tab above). You can also see the bigger picture showing how the above chart fits in under those links.

For the moment, if the move up from 80.641 where I have labelled wave ii, is wave [1] of iii up, then that low at 80.641 cannot be taken out. If it is, we may still be in wave ii, but then we have to stay above 80.085, otherwise, what we have seen from that low cannot be the start of an impulse wave up in a new minor 3 uptrend.

If we have started minor 3 up, the next level I would like for to be taken out is 82.085, for the reasons mentioned in my first post yesterday. If we get a good wave iii up, that shouldn't be a problem - if wave iii is going to be a 1.618 extension of wave i, it would reach about 83.018.