Saturday, 14 August 2010

13:13 BST - SPX Update: Weekly and Daily Charts

Putting the elliott wave count to one side for the moment, (look away now if you're not interested in any other form of analysis) here's a look at some standard technical analysis indicators and pitchforks on the weekly and daily time frames:

SPX Weekly:

The rally into the April 2010 high has given us a large downward black pitchfork. If we've just entered, or are about to enter, a major downtrend, this may indicate the likely general path prices will take. If we're in a major downtrend on this timeframe, price should head for the median line of the black fork.

We've got an inital sign that this fork may have some influence on the market with the rally from the July low having backed off its upper line in reasonably dramatic fashion with this week's candle. This line, the 20ma and the prior pivot high all worked as resistance and forced price back down this week.

Backing off these points, the failure to reach the median line of the upward green fork and the close below the median line of the downward red fork all favour the bearish case on this timeframe.

The indicators do support the bear case - the CCI (144) continues to struggle at the zero line; the RSI (14) has failed at the 50 line; the MACD, which started to curl up, may now be hooking back down from below the zero line; the stochastic has made a somewhat tame move up if the July rally is the start of a new bull trend. 
However, we have to see follow through. That would involve seeing price accelerate down, through the bottom of the red fork and into the pink fork.

If it doesn't, we'd have to take it as a warning that the bear case may not be playing out.

SPX Daily:

I think this chart looks very bearish. It doesn't mean that we can't bounce, but it suggests that the odds are against a bounce that is significant and, with the way it looks currently, it probably places the odds against a new high above 1129.24.

Looking at the forks, price has failed to get back inside the upward blue fork. The first two peaks of the July rally reached the median line of the upward green fork, but the final peak in August failed to get there and all three peaks now seem to amount to nothing more than a re-test of and failure at the underside of the major upward blue fork. Its probably confirmation that the uptrend delineated by that upward blue fork is over.

You'll see that price has been oscillating above and below the median line of the downward red fork  for a while now. Friday's action brought us back down to it after it had looked like price was moving up and away from it. This action looks bearish. 

I've drawn in a new pink fork using the 1129.24 high to get the upper line. To confirm the bearishness of the action described above, price should accelerate down towards the median line of the pink fork and eventually break down below the lower line of the red fork.

The indicators on this timeframe also seem to be confirming a bearish outlook.

When posting this chart previously, I've pointed out the difference in the behaviour of the CCI during the August/October 2009 rally in a bull market. During that rally, the CCI was pinned above +100. On the July 2010 rally, it just about got to the zero line and its now backed off hard.

You'll see that even during the initial stage of the March 2009 rally, the CCI trended up nicely, from below zero, up to and through the zero line and right up to +100. On the July 2010 rally, it trend up from below zero OK, but it stalled and has now broken the uptrend it had formed.

Its difficult to put a bullish interpetation on the behaviour of the CCI.

The MACD histogram has obligingly printed lower low bars. The MACD itself is still above zero but is pointing down. It may not fall straight through the zero line. It may hesitate there first and possibly turn back up, coinciding, perhaps, with a 2nd wave rally (if we get our 5th wave down on Monday and then bounce).

The RSI failed to get to the bullish level of 66.67 and has come back down to below 50 quite swiftly, which is bearish.

The triple top in the stochastic played out. We're now at oversold levels, but it doesn't yet show any sign of turning back up.

So, both of these time frames look bearish. However, markets can and do turn quickly and with bullish counts still very much on the table we can't assume that the bearish picture painted by these charts currently will necessarily remain. If price doesn't behave as we would expect in a downtrend (as described above), then it has to be taken as a warning that the picture may be about to change against the bearish case.

10:33 BST SPX - 60 min counts page updated

I've updated the 60 min counts page.

You can see even on the 60 min charts that if we're in an impulse wave down from 1129.24, it would certainly look better and be a more obvious 5 waves if we could get one more leg down to below 1176.69.

Getting 5 waves down is crucial to the bear case. Without it, the bear case is likely to be off the table for at least a short time, because 3 waves would mean a correction only (that is, a correction of the prior move which was up) and imply more upside to come. 

If we don't drop below 1176.69 on Monday and instead move up, we've only got 3 legs down visible on the 60 min timeframe. Now, if this happens, it may be we're still in the 4th wave of an impulse down, or it may be we have a [1]-[2]-(1) down and a move up on Monday would be wave (2) (see Friday's end of day update for the levels to watch that would invalidated those possibilities). 

So a move up on Monday wouldn't necessarily mean that the bear case is out for the time being. However, it would be sensible to have this possibility in mind and just keep an eye on those levels that I mentioned yesterday that would eliminate the bearish counts for the move down from 1129.24.