Tuesday, 17 August 2010

22:07 BST - SPX Update: 15 min pitchforks

Here's an update of the 15 min chart I posted earlier today (you can see the the earlier posts here and here):

SPX 15 min pitchforks:

The resistance at the intersection of the upper lines of the green and blue forks held well and with the 200ma, pushed prices down, almost back to the lower line of the green fork. That's not bullish action and may be confirming that we have seen the end of the rally from the 1069.49 low.

However, we really need to see price fall out of the green fork, perhaps re-test the lower line from below and for it to fall away from there before we can get too confident of this. Obviously, we need a confirming wave count too!

I've drawn in a new downward red fork, which may provide some guidance as to a possible path for price to take if we are now in a 3rd wave down, as the bearish wave count suggests. It may be that we see an attempt to break up above this fork first, as we saw with the blue fork when price rallied up to 1127.16.  However, this doesn't have to happen and if things get really bearish, we may just head straight for the median line of the red fork. We'll have to wait and see.

For the moment, the first aim is to break out of the green fork. If we had 5 waves down from today's high for the start of a new impulse wave lower, as provisionally labelled in tonight's end of day update, this shouldn't be too difficult to achieve very quickly.

If we're still in wave [c] of ii, then we may not break the green fork's lower line (or if we do it may only be briefly) and we may just head back up towards its upper line, which will likely result in the upper line of the blue and red forks being broken above also.

So, these forks may be worth monitoring along with the wave count as price action develops.

21:17 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.

To see the various ways to count the rally from the 1010.91 low on 1 July, see the 10 min charts in last night's end of day update.

In tonight's update I'm concentrating on the move from the 1129.24 high and the rally we have seen since the low at 1069.49.

Here is the 1 min chart of the decline from 1129.24. This is the bearish count for all of the Options shown on the 10 min charts in last night's update, although the labels, including the degrees of those labels, relate to Option 2:

SPX 1 min - decline from 1129.24:

We appear to have seen a nice 5 waves down from the 1129.24 high to the low at 1069.49. This would be wave i down on the bearish count.  The rally from the low at 1069.49  would be wave ii. It has to stay below the high of 1129.24 in order for this bearish count to remain valid.

The move up from 1069.49 could be counted as a double zig zag, but I've labelled a single zig zag which consists of 5 waves up for wave [A], a 3 wave pullback in wave [B] and 5 waves up for wave [C].

The question is whether or not we've completed wave [C]. You can see the alternate labels I've put on the chart which suggest we may have another leg up in wave (5) of [C] still to come. We may have had 5 waves down from today's high, as you can see from the second chart above. However, this could be a c wave in an expanded flat correction or an a wave of a correction. or it could count as a zig zag. For the moment, I've labelled it as wave (1) down.

Here's a closer look:

SPX 1 min close up:

If we take out the high at 1089.05 which is the alternate wave (1) of [C] high, without a new high first, then we can eliminate the alternate count. Taking out that level would also increase the likelihood that this single zig zag has topped. Today's high would certainly be a good place for a wave ii top. Its at the 50% retracement level which is where I said in last night's update I would ideally like to see wave ii end.

However, until we start dropping in a manner consistent with having completed a 2nd wave corrective retracement and we see important levels to the downside taken out, the risk of more upside remains. 

Any further upside could be within the context of the overall bearish counts shown on the 10 min charts in last night's update and in the 1 min charts above, provided we stay below 1129.24. However, as long as no significant level to the downside is breached, the risk of further upside in the bullish counts remains and these could take us substantially higher.

The two bullish counts I've been posting are under the bullish alternate for Option 4. 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 and a further explanation and context can be found on the 60 min counts page.

Here are 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. (see the chart of this count on the 60 min counts page which shows that level). 

However, if the labels shown are correct, and we are in wave [4], we would have to stay above 1082.62 otherwise this labelling would be invalid. 

If we take out that level, it might still be a [1]-[2]-(1)-(2) up from 1069.49. To avoid that, we'd need to take out the low at 1075.16. If we take out that level it would be unlikely that we were seeing an impulse wave up from 1069.49. 

Still, until we take out 1056.88, this count remains a possibility, since until then, we could still be in wave (ii).

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. The levels to watch referred to in relation to the first alternate for the bullish count apply here too.

However, if we take them out, the possibility remains that we are still in wave B. So, really, we need to take out the low at 1010.91 in order to invalidate this count.

So, if we're in a wave ii retracement, if there is any further upside to come, the high of 1129.24 cannot be taken out. If it is, the 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.

For a step by step elimination of the bullish possibilities, the  levels to watch to the downside which I've referred to above are 1089.05, 1082.62 and 1075.16. After that, we have 1069.49, 1056.88 and finally 1010.91.

18:59 BST - SPX Update; 15 min ptichfork resistance and TA divergences

On this 15 min chart, we've reached the fork resistance I mentioned may be a possible target earlier and we have divergences on the indicators to accompany it, along with a potentially complete elliott wave count:

SPX 15 min pitchforks:

Whether or not this plays out, however, remains to be seen - we have to start taking out important levels to the downside. The 1089.05 level mentioned in my last post is the first one we need to go for the bear case.

18:52 BST - SPX Update; 1 min close up with alt count

Following on from my last post, we'll have to see how we pull back now. If we don't drop as if we've started a 3rd wave down, here's another possibility we'll have to bear in mind for more upside on the bearish count - see the alternative labels on this chart:

SPX 1 min close up:

If we take out the high at 1089.05 in the next pullback, which would be wave (4) on this alternative count, this alternative will be invalidated.

18:42 BST - SPX Update: 1 min chart close up

The further new high possibility in the last post is playing out. It could now be about done, based on this labelling:

SPX 1 min close up:

However, as before, if we've completed a corrective rally, we need to start dropping as we would expect once a correction is over. If we don't, the risk of more upside remains.

17:34 BST - SPX Update: 1 min chart close up

Here's the close up of the bearish count, but I've noted on it the possibility for another high to come to complete wave (5) of [C] - this arises if wave (4) wasn't a triangle:

SPX 1 min close up:

Unless we start dropping like we've completed a corrective move up from yesterday's low, this possibility remains.

17:17 BST - SPX Update - 1 min bear count and 1 min bull count

The triangle break out provided a bit more than expected which is always nice. Now it looks like we could have a complete 5 waves up from the [B] wave low, although there could be a few more squiggles to come - difficult to tell when the market moves in a striaight line:

SPX 1 min from1129.24 high:

We've retraced nearly 50% and hit the 1096 level where wave [C] is 1.618 x wave [A] as mentioned in yesterday's end of day update. So, it would be a nice place for wave ii to end. The alternate count, by the way, may be less likely now - this retracement is fine for wave ii.

Obviously, what looks like a zig zag could also be a [1]-[2]-[3]. Here's one of the bullish counts from last night's update to show the bullish possibility here:

SPX 1 min - bullish alternate under Option 4:

To negate this we need to take out the wave [1] high at 1082.62 in an assumed wave [4]. Then we need to drop below the low at 1075.16, to rule out a [1]-[2]-(1)-(2). Finally, we need to take out the low at 1069.49.

Until we start to drop and take out these levels, the risk of more upside remains, in my view.

15:41 BST - SPX Update: 1 min chart close up

If this is a triangle, we should see that 5th wave:

SPX 1 min close up:

The height of the triangle is 3.68 points so we could add that to the break out level for a possible target for wave (5) - I think its about 1092 if we break up soon.

If we've had the C wave low of the triangle (the second touch on the lower blue line) its at 1085.91 - taking that out in a wave E would invalidate the triangle. If we're still in wave C, we can't take out the wave A low at 1085.37.

15:22 BST - SPX Update; 15 min pitchforks

In pitchfork terms, the stall that we're currently seeing follows a hit near the upper  line of the new green fork. Price quickly fell back down below the median line of the old blue downward fork and is struggling to get back above it:

SPX 15 min pitchforks:

In terms of the elliott wave count, you'll see from my earlier post that a further high would make an ideal looking 5 waves up from the [B] wave low. If that is to happen, we may see a further move above the median line of the blue fork and towards the upper line of the green fork, but, if we're seeing a 5th wave up, we may see a failure to get to the upper line of the green fork, and a collapse back down as wave [C] completes (or wave (1) of [C]).

If we are only seeing wave (1) of [C], then we may expect further upside to get back to the upper line of the green fork and the upper line of the blue fork after perhaps a false break below the median line of the green fork. We might even see a new, steeper upward fork form to accommodate an acceleration move for (3) of [C].

If we simply break down below the green fork altogther from here - that's going to be pretty bearish.

14:55 BST - SPX Update; 1 min chart close up

This does look like it needs another high to complete a clear looking 5 waves up from the low I have as [B]:

SPX 1 min close up:

If we get it, the question will be whether its all of [C] or just wave (1) of [C]. We'd need to take out the [B] wave low to avoid the possibility of an extending [C] wave.

If we don't get a new high and drop below the high I have as wave (1), it will look like 3 waves up, but it may be one of those waves with a small 1 and 3 then an extended 5 - see the wave from [4] to [5] on this chart.  Again, even if this happens, the high today may only be part of [C] until we take out the [B] low.

13:59 BST - ES Update: 60 min chart

ES on the 60 min chart has been moving up since yesterday's afternoon low, within a new upward fork. Its just reached the upper line of the red downward fork that delineated the drop from the recent highs, so this may provide at least temporary resistance:
ES 60 min:

To confirm more upside, we need to break above the red fork's upper line and get towards the upper line of the green fork. We're above the moving averages and the cloud, so things are aligned for more upside. 

The only worrying thing is that as of now, the Dow futures have failed to make a new overnight high along with ES. That's often not a good sign. It may work itself out, but if not, it may be a warning of a possible failed gap up to come when the cash markets open.

11:04 BST - Dollar Update: 20 min chart

I've amended the count for the dollar that I've been showing on the 20 min chart (see yesterday's update), to put the high of wave iii at the high for the rally from the 80.085 low, at 83.016.  

The reason for this is that since we took out the low I had labelled as wave iv, it was necessary to switch to the alternate count I have been following and which I explained in the last update. However, for that, we needed a 5 wave move from the high for [C] of iv. Instead, we're getting what looks like a zig zag. That would mean I'd have to switch to a [W]-[X]-[Y] labelling for wave iv which would have been fine except that both [W] and [Y] would be zig zags, but [X] took out the high of [W], so the overall correction couldn't be a double zig zag, it would have to be a double three. However, for that, wave [W] needed to be a flat since wave [Y] looks like a zig zag. I couldn't label wave [W] in that way since within it, wave (B) didn't retrace at least 90% of wave (A).

I actually prefer this count now since at the 83.016 high, wave iii is about 1.618 x wave i. Also, within wave iii, wave [3] is about 1.236 x wave [1] and wave [5] is about equal to wave [1]. So, some nice fibonacci relationships on this labelling:

Dollar 20 min:

Apart from that re-labelling, there is no significant change to the important levels - this count putting us in a wave iv correction will still be invalidated if we take out the wave i high at 81.534.

You can see on the chart that we're at the 38.2% retracement where there is also support from the wave [4] of iii low. If that support fails, we could well slip to the 50% retracement level and then we would be in danger of getting to the wave i high and invalidating this count.

If it is invalidated, the prior alternative still stands, that we have had a wave (i) high (it would now be at the 83.016 high) and the retracement from there would be wave (ii), so could go alot deeper towards the 80.085 low. Obviously, it could not take out that level since doing so would invalidate that count, in which case, some of the more bearish alternatives noted on the dollar page would have to be considered as possibly in play.

So, we're looking for an end to a wave iv correction around the current levels, to be followed by a wave v move up fairly soon. Watch the 81.534 level for the invalidation of this count and if that happens, the 80.085 low becomes the level to watch.