Monday, 16 August 2010

21:22 BST - SPX End of Day 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). On these 10 min charts, all of these moves are shown as having topped at 1129.24. See the 60 min counts page for what this means, if correct, in the context of each Option.

The count from the high of 1129.24 is the same for all of these Options, assuming the rally off the July low was corrective as these 10 min charts assume.

Here are the 10 min charts of each Option:

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

The chart relates to the count for Option 2, but the count for Option 1 is pretty much the same into the high, just one degree lower, namely, a single zig zag which is complete at 1129.24. 

Option 3 - from 1010.91, a triple zig zag:

On this Option, I've shown the rally from the July low as a triple zig zag, also complete at the 1129.24 high.

Option 4 - from 1010.91, a double zig zag:

A double zig zag count also complete at the 1129.24 high, is shown on the chart of this Option.

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

On the chart of this Option I've shown a single zig zag count, with an ending diagonal wave (c).

On all of the above bearish (Options 4 and 5 are only  near term bearish) counts, if we  can count a corrective wave high at 1129.24, it doesn't really matter whether its a single, double or triple zig zag. The important thing now is what has happened since the high at 1129.24.

Here is the 1 min chart of the decline from 1129.24. This count applies to all of the Options shown above, although the labels, including the degrees of those labels, relate to Option 2:

SPX 1 min - decline from 1129.24:

You can see from the 1 min chart that there does appear to be a clean 5 waves down from the 1129.24 high to the low at 1069.49. This would be wave i down and we would now be correcting in wave ii up.  If its right that the rally from the low at 1069.49 to the high at 1082.62 was 5 waves, then it means that wave ii is formimg a zig zag.  In turn, this means that wave [B] of ii can't move below the low of wave i.  If it does, then it may be that a double three would have to be counted from the low, instead of a straightforward zig zag.

Or, it may be that one of the alternatives mentioned on the chart is playing out (the second one below is actually the running flat variation of the expanded flat alternative labelled on the chart).

The first of those is that the low at 1069.49 was only wave (1) of [5], with the subsequent rally being wave (2) of [5]. This is quite possible - I can count the rally as a double or single zig zag.  A single zig zag would put wave A of (2) at 1081.40, followed by a wave B pullback, then the rally to the high at 1082.62 would be wave C of (2). This possibility remains intact as long as the high at 1082.62 holds, assuming the decline from there is all or part of wave 1 of (3) of [5].

The second alternative count, if we had 5 waves up from 1069.49 and take out that low before we make a new high,  is that wave [4] of i topped today as a running flat type correction. The 5 waves up from the low would be wave (C) of that running flat, with the decline from there being part of wave [5] of i. This would be a variation on this alternative of wave [4] still in progress which I have on the chart, which assumes that we're seeing a zig zag up from 1069.49, for wave (Y) of [4] for an expanded flat type correction.

Here's a close up of the count showing the end of the triangle I have labelled for wave [4]. Its the chart I've been posting during today:

SPX 1 min close up:

If we don't take out the 1069.49 low and go on to make new highs above 1082.62, then the main count putting us in wave ii up or the alternative which has us still in wave [4] of i would be the most likely counts. The alternate that has us in wave (2) of [5] would become less likely if we take out 1082.62 and would be ruled out if we take out 1083.28. 

Despite today's initial decline, the two bullish counts I've been posting under the bullish alternate for Option 4 remain intact. You can see the bigger picture of the bullish alternate  on the second chart under the Zig Zag from March 2009 page, where it is shown as the alternate count.

I have two possible ways to count this bullish alternate:

SPX 1 min - bullish alternate under Option 4, impulse up from 1010.91:

This count won't be eliminated until we drop below 1056.88.

SPX 60 min - bullish alternate under Option 4, leading diagonal from 1010.91:

This count will only be invalidated if we drop below 1010.91. However, please note my comments about that low on the 60 min counts page.

So, we can count 5 waves down from 1129.24 to 1069.49. If that's right, giving us our 1st wave down in a larger decline on the bearish counts, we are now in a 2nd wave retracement. This means that the high of 1129.24 cannot be taken out. If it is, these bearish counts, as labelled, will be invalidated.

It wouldn't mean that all bearish counts would be off the table, it would just mean a delay in the resumption of the bear case - see the explanation of what a high above 1129.24 (and 1131.23) could be on each Option on the 60 min counts page.

If we're in wave ii up and its forming a zig zag as the main labelling suggests, assuming wave [B] of ii bottomed at 1075.16, if [C] is to equal [A], we would see the next leg up get to about 1088. That would be less than a 38.2% retracement of the decline from 1129.24, perhaps a bit shallow for a 2nd wave. So, we might have to be prepared for a more substantial [C] wave, say a 1.618 extension of wave [A], which would take us up to about 1096, approximately a 50% retracement. If we only make a 38.2% retracement, it would probably make it more likely that the move up from 1069.49 was part of an on-going wave [4] of i.

Even though we're in a 2nd wave retracement on the main count and it could go all the way back up to the 1129.24 high and still be valid, ideally, it will retrace substantially less than that. The 50% retracement level mentioned above, if [C] were to equal [A] is about where I'd like it to end, especially if we are in 3rd waves down on most of the bearish counts. Anything too much deeper may have us on alert that the bearish count may be getting into trouble.

19:22 BST - SPX Update: 1 min chart close up

Whether this potential [A]-[B]-[C] is wave ii or still wave [4], it counts reasonably well still. If that is a triangle where I have (B) of the assumed wave [B], it makes it even less likely that the rally from the low today was wave (2) of [5] (but it can't be ruled out completely until we take out wave (E) of the triangle):

SPX 1 min close up:

Support seems to be around 1077, which coincides with the 38.2% retracment level and the wave (4) of [A] low. So, that area may be a logical stopping point for wave [B], but it can go lower.

17:49 BST - SPX Update: 1 min chart close up

The main count of a wave [5] and i low at 1069.49 looks OK at the moment, with what appears to be a decent 5 wave count up from the low (I've labelled it as complete, but it may not be):

SPX 1 min close up:

The alternatives still stand, especially the possiblilty that wave [4] is still in progress (this would line up with what may be happening in the dollar - see my earlier update where the alternate of an expanded flat wave iv may be the preferable count based on action subsequent to that update, even though we haven't yet violated the current wave iv low). 

The option that the rally from the low is wave (2) of [5] is close to being negated and, if we have had 5 waves up from today's low, would seem unlikely, though its possible to count the rally as a double zig zag. If we drop from here and take out today's low, this would certainly be a stronger possibility, though I'd still prefer the expanded/running flat for wave [4] option.

16:24 BST - SPX Update: 1 min chart close up

Here's a closer look at the options for the elliott wave counts just posted:

SPX 1 min close up:

16:18 BST - SPX Update: 1 min chart from 1129.24 high

Well, three possibilities at the moment for this action. Here's a 1 min chart from the 1129.24 high:

SPX 1 min from 1129.24 high:

1) wave [4] was a triangle ending at 1083.28 and we had 5 waves down to today's low to complete wave i. We're now in wave ii up. today's low at 1069.49 must hold for this to remain valid; or

2) as above, but the 5 waves from the end of the triangle to today's low was only wave (1) of [5]. For this to remain valid, we must stay below wave (E) of the triangle at 1083.28; or

3) wave [4] is a running or expanded flat, so we have yet to see wave [5];

12:33 BST - SPX Update 60, 15 and 5 min pitchforks and TA

Following on from my weekend post showing the weekly and daily charts of SPX with pitchforks and other, more conventional technical analysis, here are some intra day charts with a look at what those technical analysis tools might be suggesting:

SPX 60 min:

This was last posted on Friday when I interpreted the chart as suggesting that a further low was on the cards. I don't think that's changed. The RSI turned down at the end of the day, still having been unable to get to the 50 line, let alone above it. The MACD histogram  seems to have formed that peak that is lower than the prior one, which is bearish. The stochastic has turned down from the 50 line, again, bearish.

Price continues to oscillate around the lower line of the blue fork, with the 13ma forming a barrier of resistance at the moment.

As shown in my end of day update on Friday, the elliott wave count suggests another low is required to complete a nice looking 5 waves down from 1129.24. This 60 min chart is consistent with that and its probably set up to give  the postive divergence that we'd expect to see on a 5th wave - I mentioned on Friday that the MACD histogram troughs were consistent with a 1st and 3rd wave down in price; if we do get a 5th wave down, its not difficult to see that we might also get a higher trough in the histogram. If so, we might then start to look for higher low bars within that new trough to indicate that we may have seen the end of the 5th wave, as well as monitoring the elliott wav count (the one I showed in Friday's end of day update may or may not be correct).

Here's the 15 min chart:

The blue fork is the same as the blue fork on the 60 min chart above. You can see the pink fork did a pretty good job of delineating the 3rd wave down (if that's what it was), but was then broken to the upside on Friday. 

We formed a new upward green fork and got to the median line of that fork. This was initially bullish, but the fact that price fell straight back down to the lower line of the green fork, without much hesitation, suggested something was amiss. If it was bullish, price should have bounced at the lower line. Instead, it struggled for a while to cling on to the lower line, but when it hit the upper line of the new black fork that was created from the high that hit the median line of the green fork, it just collapsed away, towards the median line of the new downward black fork. That seems rather bearish.

If we're going to see a 5th wave down, we might expect it to get towards the lower line of the black fork - perhaps repeating the type of action we saw within the pink fork, but on a smaller scale.

The standard technical analysis tools on this chart also seem set up for divergence against a potential new price low, expecially the MACD and its histogram.

Here's the 5 min chart:

Except for the red fork, all of these forks are the same as the forks shown on the 15 min chart.

Its just a closer look at the failure of the break above the pink fork that seemed to be guiding price lower on Friday. Once we broke above it, there was bullish potential, but that was negated with the failure of the green fork, as described above.

Since the elliott wave count, and technical indicators, seem to be consistent with a 5th wave low coming up, we'll need to watch all of them and the pitchforks for signs of an end to the decline, assuming that we do get that move lower for the 5th wave down. 

If we start breaking above the black fork instead, then we'll have to monitor the behaviour of price within any new upward fork that may be formed to see if we may have ended the decline without that 5th wave (though as I've mentioned - see Friday's end of day update - we may already have had the 5th wave) of if we may still be chopping around in the 4th wave before the final drop.

10:36 BST - Dollar Update - 20 min chart

Looking at the 20 min chart of the dollar which shows the count off the 80.085 low, I'm thinking we may be getting an extended wave v up. You can see the bigger picture on the dollar page which I update on Friday night:

Dollar 20 min:

This count will be invalidated if we take out the wave iv low at 82.182. If this count is correct, we ought to see an acceleration up in wave [3] of v. I'd watch the low at 82.477; if taken out, it might be an early warning that this count is not playing out. If the labelling is wrong, it may be an expanded flat forming for wave iv which is a possibility I've mentioned before, ([A] would be the low marked iv, [B] the high marked (B)and [C] would be in progress).

This hourly euro/dollar chart seems to support more downside in euro/dollar and, so, more upside in the dollar index: its found resistance at the 50ma, the falling ichimoku cloud and the median line of the downward sloping pitchfork (its only a speculative one since the upper line isn't drawn from a pivot high). Obviously, the picture here will start to look less bullish for the dollar if we see these points of resistance start to get taken out:

Eur/USD 60 Min: