Wednesday, 18 August 2010

23:43 BST - SPX Update: 60 min chart

Here's an update of the 60 min chart. When I posted it earlier today, I said I thought it seemed to be set up for yesterday's high to be taken out since at yesterday's high, we had not seen any of the usual divergences between these indicators and price - see that post here.

SPX 60 min pitchforks:

As mentioned in one of my earlier posts (click here) although on the SPX (and the Dow), we didn't see higher highs made, we did get higher highs on the Transports, the Russell, and the two Nasdaq indices and, if you look at their 60 min charts, the indicators diverged bearishly against those new price highs.

If SPX and/or the Dow continue  to fail to make a high above the high of 17 August, that should be a good sign for the bearish case since such divergences, if they stand, are rarely a good sign for the markets. That would certainly be one thing I like to see at a top of any degree.

Anyway, you can see from the 60 min chart of SPX, that while we didn't get the higher high in price, it was very close and there are marked lower highs in the indicators, as noted on the chart. This isn't bearish divergence as such, but it does illustrate that the push higher today was weaker than the push up we had yesterday. This doesn't mean that we've definitely made a top - its feasible that SPX and Dow play catch up to the other indices and make new highs tomorrow, with more divergences showing up in these indicators on this time frame and only then do we roll over.

There are various counts that would accommodate a further high on the bearish case. One is the double zig zag I showed on the 1 min close up posted during the day, which you can see in the end of day update

Another would be if (5) of [C] on the main count shown on that chart (or on the expanded flat 2nd wave count shown on the first chart in today's end of day update) is still in progress - today's high may only be wave (3) of [C] and the late day sell off would be wave (4). This would be invalidated below 1091.03.

So, signs that we are at or near a top for the rally from 1069.49 are showing up on the 60 min chart. What we need now is impulsive action to the downside to confirm it if the bearish counts are playing out. Watch the 1091.03 level mentioned above and then the 1085.76 level referred to in the end of day update to eliminate some of the near term bullish possibilities (though, as explained in the end of day update, other more bullish possibilities will remain in play even if those levels are taken out).

21:19 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. 

So, today's action continues to leave us guessing whether its the bullish or bearish counts that are in play.

Here are two 1 min charts showing the bearish counts  for the move down from 1129.24 (these are shown on the charts of Options 1 and 2 - to see those Options in context, please see the 60 min counts page - but they apply to the bearish counts on all the Options):

SPX 1 min chart: expanded flat 2nd wave correction:

SPX 1 min chart: zig zag 2nd wave correction:

And here's a close up of the second chart focusing on the action from the 1069.49 low and showing a possible alternate count that would involve more upside (I've labelled the start of an impulse wave down from today's high, but it could just as easily be part of the (B) wave of [Y] on the alternate double zig zag count):

SPX 1 min close up:

The difference between the two counts is that in the first chart we bottomed in the 1st wave at 1076.69 and in the second chart we bottomed at 1069.49.

On the first chart, if we take out the low at 1085.76, we can probably conclude that the correction is over. On the second chart, taking out that level would negate the alternate count of a double zig zag, but would not preclude the possibility of a second zig zag if we have only seen one zig zag so far, as the main count suggests.

However, for both bearish counts, with the bullish counts still in play (see below), we really can't have great confidence in them until we take out 1069.49. 

Here are the two bullish counts, which arise 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):

SPX 1 min chart: bullish alternate under option 4 - impulse up from 1010.91:

If we've started wave (3) of [3] up on this labelling, we can't take out the low at 1085.76. 

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

On this count, a truncated wave (v) of [i] of C isn't ideal, but its not against the rules. The count as labelled would, however, be invalidated below 1069.49. However, it would only be invalidated altogether if we take out 1010.91 - until then, we could still be in a B wave correction.

So, if we're in a 2nd wave 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.

The first level to watch to the downside is now 1085.76. If we take that out, the first bullish count shown above would be invalidated as labelled. However, that would still leave the second bullish count and that won't be invalidated until we take out 1010.91. 

Until then, there is probably going to remain uncertainty as to whether the bullish or bearish counts are in play, so we  just have to monitor the wave counts and continue to identify the levels that might provide an early signal of the market's intentions.

19:50 BST - SPX Update: 1 min - Possible bearish alternate count

Here's another possible bearish count to consider - if we count 5 waves up from the 1069.49 low, that could be wave [C] of an expanded flat wave ii correction. This means placing the wave i low at 1076.69. Here it is on the chart of Option 1 (so the degrees of the labels used are one less than the degrees I've mentioned and which appear in the previous 1 min charts):

SPX 1 min - expanded flat for 2nd wave:

So, further hope for the bear case, but obviously, until we see an impulsive decline and take out the low at 1069.49, the risk of further upside, whether in the double zig zag referred to in my last post or from the bullish counts, can't be ruled out.

19:37 BST - SPX Update: 1 min close up - revised bearish count

The bullish counts are looking very good at the moment - see earlier post here - but for the bear case, there's still hope. 

Although we haven't so far taken out yesterday's high, this can only be said of SPX and the Dow; the Nasdaq Comp, NDX, RUT and TRAN have taken out those highs. It may be the case that SPX and the Dow are leading the way down in a (1)-(2), but since they got so close to taking out that high, if we are at a corrective top, it may be better to treat their failure to take it out as a bearish divergence against this other indices that have done so. 

So, with a re-adjustment of the labels, here's a single zig zag count for SPX which shows the rally today as wave [C] of the zig zag, with a possible truncation, in that it is failing to get above the high of wave [A]:

SPX 1 min close up:

I've shown a top at today's current high, but it may be premature and we may still be in wave 4 of (5), with a new high on SPX (and/or in the Dow) to come.
I've left on the possible double zig zag labels because if we're in a double zig zag, I'd have to count today's rally as wave (A) of [Y], in which case, we'd have a further high to come once we've had a (B) wave pullback.

17:27 BST - SPX Update: 15 min pitchforks

Here's the 15 min chart updated from last night:

SPX 15 min pitchforks:

You can see that we did drop out of the green fork. We're now testing the upper red line of the red fork I drew on last night. If we're in the bearish count, we should see this hold back price. As pointed out in last night's update, price may get further above it as it did on the rally to 1127.16. If that happens, the bearish case will require a quick drop back within it (you can see how the market fell following the false break above the blue fork).

Note, its possible to draw a new upward fork using the low on 16 August, yesterday's high and today's low - I haven't drawn it in because it would make the chart really cluttered (well, more cluttered), but that's another reason why we need to see the red fork hold for the bear case.

16:45 BST - SPX Update; 1 min close up

If we're in the bearish count, we're either still trying to complete wave (1) down from the 1100.14 high, or we have completed it and we're currently in wave (2). Given the width of the retracement up from today's low compared to what I've labelled wave 2 of (1), I think I prefer the latter even though the 5th wave would be very elongated (it was the count I showed last night and this morning, but I've labelled the former on the following chart):

SPX 1 min close up:

If its wave 4 of (1), we need to stay below the wave 1 low at 1097.51. If its wave (2), we can't take out the 1100.14 high (if its wave (2), there may be further upside to come since its only about a 38.2% retrace (50% would be at about 1093).

15:19 BST - SPX Update; 1 min chart bullish count

This is one to watch out for on the bullish count. Although we haven't invalidated the [1]-[2]-[3]-[4] count I showed last might (see here), with a supposed 4th wave retracing  about 61.8%, thoughts have to turn to something more bullish: a [1]-[2]-(1)-(2):

SPX 1 min bullish alternate under Option 4:

Still, watch both the invalidation points since both counts remain in play - the wave [4] count is invalidated below 1082.62. The more bullish count in the chart is invalidated below 1075.16.

14:40 BST - SPX Update - 1 min close up

The possibility that we were in wave (4) of [C] of ii, with wave (5) still to come has been eliminated with the drop below 1089.05. However, there is still the double zig zag possibility I mentioned earlier and the bullish counts - see last night's end of day update and my earlier post of the 60 min chart for levels to watch to invalidate these:

SPX 1 min close up:

13:54 BST - Dollar Update; 20 min chart - possible head and shoulders

I've re-labelled the move in the dollar since the high at 83.016 to remove the triangle that appeared to have formed yesterday. With subsequent price action, this may be a better alternative (you can see the bigger picture on the dollar page):

Dollar 20 min:

If we don't see a turn up soon, we'll be in danger of taking out the 81.534 level I've been mentioning as the invalidation point for the main count as labelled. That would mean that the most likely bearish alternative would put us in a wave (ii) correction.

This might fit with the head and shoulders pattern I've marked on the chart which has a target to about 81.000 if it follows through. This would be about a 70.7% retracement if we are in wave (ii) not iv.

Of course, a failed head and shoulders would be bullish for the dollar. However, until it starts pushing up impulsively again, we have to assume that more downside may be on the cards.

12:16 BST - SPX Update: 60 min pitchforks and technical indicators

You'll remember from the 15 min chart I posted yesterday (see the last post here - it has links to the earlier posts) that we saw some nice bearish divergences in the standard technical analysis indicators against price as we moved into yesterday's highs. Coupled with the potential resistance from the upper lines of the blue and green forks and a possible complete elliott wave count, the signs were that we would get a turn down in price.

The position with the indicators is not so clear on the 60 min chart:

SPX 60 min pitchforks:

The RSI and stochastic are turning down, but there hasn't been any obvious bearish divergence against price at the peaks that these indicators  made yesterday. The same applies to the MACD histogram. That formed a substantially higher peak yesterday than the peak it made in what I've labelled as wave [A] of ii. Within that higher peak, the bars did start to print lower highs, but that was consistent with the price action, not diverging from it.

The turn down in these indicators on this time frame may be sufficient in the context of a 2nd wave within a 3rd , to mark the end of the 2nd wave correction. However, I think it sensible to be aware of the potential risk that the end of the correction won't come until these indicators print divergences against price, which means that we may see a higher high in price than yesterday before this 2nd wave is over.

This would fit with the alternative count I have, suggesting that the drop off from the high yesterday may only be wave (4) of [C] of ii (you can see this on the 1 min close ups I posted during the day and also in the charts posted in the end of day update). There is a further alternative that could lead to new highs - we did complete a single zig zag yesterday, but the drop from the high is all or part of an [X] wave before a second zig zag higher.

What we're seeing in the indicators on this time frame (or rather, what we're not seeing) could also fit with the bullish counts (see the last two charts in yesterday's end of day update), where we are in the 4th wave of an impulse up from 1069.49 and which is part of a larger impulse up from the low of 1010.91.

As I said in the end of day update, for the bearish count, to preclude the alternative of a further high to come, based on the way I've labelled the [C] wave of ii, we need to drop below 1089.05. However, to preclude yesterday's late sell off from being a 4th wave on the bullish counts, with a further high still to come, we need to drop below 1082.62. The next level down is 1075.16 - taking that out would certainly enhance the bearish case and would make the second zig zag possibility less likely (though we'd need to take out 1069.49 to be sure it wasn't playing out).

This is just something to be aware of given that the 60 min indicators don't seem to have shown the usual divergences we would expect when a top is made.