Monday, 23 August 2010

21:14 BST - SPX End of Day Update

Today's action has done little to resolve the question of what the move down from 1129.24 represents.

You'll see on the 60 min counts page that on the bearish counts shown on each of the 5 Options I'm following (each of those represent different ways to count the decline from the April high at 1219.80 - that page puts these shorter term charts in context), I'm looking at that move as 5 waves down. 

For Options 1 to 3, it would be 5 waves down within a larger 5 wave decline in a potentially long term bear market move. For Options 4 and 5, it would be 5 waves down within a  [c] wave which would likely be the final wave in an intermediate wave (X) correction down from the 1219.80 high prior to a rally to new highs, so, near term bearish, but longer term bullish.

However, for Options 1 to 3, its possible to count the decline from 1129.24 as the [b] wave within  single zig zag from 1010.91 and we would now likely be in the [c] wave up which would take us above the high at 1129.24. Also, under Option 4, its possible that we already completed intermediate wave (X) down and have started minor wave A of (Z) up. 

Both the bearish and bullish counts mentioned above all remain in play after today.

Here's the 1 min chart showing the move down from 1129.24:

SPX 1 min - from the 1129.24 high:

The labelling and degrees on this chart relate to option 2 but applies to the bearish counts on all the Options.

Essentially, the i-ii-[1]-[2] count remains intact. The move up from the 1063.91 low does look OK as a 3 wave zig zag complete at 1081.58, where wave (C) is 1.236 x wave (A) and wave [2] as labelled came up to the 50% retracement level and is just at the lower end of the resistance areas highlighted in the charts I showed at the weekend.  If this count is correct, we're now in wave [3] of iii down. The problem is that we need to see some price action that is consistent with this bearish count. So far, we haven't. 

This does raise the possibility that 5 waves down for wave i from 1129.24 only ended at the 1063.91 low - a possibility I mentioned in my post at the weekend when I looked at the MACD histogram on the 60 min chart - see that post here.

If this is what is playing out, we could have another substantial rally to come for wave ii, probably above the high at 1081.58 and probably nearer to the 1100 level. 

Taking out the low of 1063.91 would help to reduce the likelihood of this count, but wouldn't rule it out in my view unless we have a substantial decline that clearly marks it out as a 3rd of a 3rd as we are expecting on the bearish count. This is because, referring to the above chart from the high at 1100.14,  without such a decline to well below 1063.91, I could label the low at 1085.76 as wave (1) of [5] of i, the high at 1099.77 as wave (2), the low at 1063.91 as wave (3), the high at 1081.58 as wave (4) and any new low below 1063.91 as wave (5) of [5] of i, unless we drop in such a  bearish manner that it has to be wave [3] of iii. So, this is something I'll certainly be keeping in mind.

For the moment, here's a close up of the count from today's high at 1081.58. It shows the bearish count assuming we've completed a i-ii-[1]-[2] and we're now in wave [3] of iii down. I'm showing a (1)-(2) down from 1081.58 and we're now in wave (3) of [3] down (I've dropped the (1)-(2)-1-2 given the size of wave 2 compared to wave (2) as mentioned in  my earlier post). It also shows the possibility that wave [2] isn't yet complete and the high at 1081.58 was only wave (A) of [2]. So, we still have a rally in (C) of [2] to come. This  latter count could also apply if we only completed 5 waves down for wave i at 1063.91 as discussed above, in which case, 1081.58 would be wave [A] of ii:

SPX 1 min close up from 1081.58:

If the bearish counts are playing out, then we really need to see some price action that confirms it  quite soon given that in elliott wave terms, a 3rd of a 3rd wave down at any degree is very bearish and should produce clearly impulsive action (I explained the need for us to see this type of action  soon in the context of the 60 min charts also on the 60 min counts page).

As long as we don't see this type of action, the bullish counts have to be very much on our minds.

As well as the bullish possibility discussed above of more upside to come in wave ii if we only bottomed in wave i at 1063.91, the other bullish counts that I showed in the end of day update on Friday remain in play as mentioned above. They will continue to be possibiities until such time as the low at 1010.91 is taken out as explained in that update.

So, for the bearish counts, the first step would be to take out the 1063.91 low in a manner that is consistent with the bearishness of the count and  that gives us a clear 5 wave move down from 1081.58. The decline we saw towards the end of the session may be more encouraging to the bear case, but it really does have to follow through without much more hesitation. If we don't see this the near term  bullish counts continue to remain in play and, of course, the longer term ones will also stand until the 1010.91 low gets taken out.

19:45 BST - SPX Update: 1 min very close up

With that move up, four out of 5 possibilities remain from the chart I posted earlier (with some slight adjustment here and there). Here it is updated:

SPX 1 min very close up:

Two bearish counts assuming we had a wave [2] top at 1081.58:

1) we're in a (1)-(2)-1-2 down from 1081.58 within wave [3] down - not looking like the best count given the size of wave 2 compared to wave (2). It will be invalidated if we move above 1076.67;

2) we had a truncated wave 5 within wave (1) which completed at 1069.63 and the sideways action since then is wave (2). The high at 1081.58 must hold.

Two near term bullish counts within the bear count - wave [2] still in progress, with wave (A) of [2] being the high at 1081.58:

1) wave (B) bottomed at 1069.43. Not looking likely since the move up from 1069.43 doesn't look too impulsive. However, if we label the 1081.58 high as wave (W), and 1069.43 as wave (X), we don't need an impulse for wave (Y), just a 3 wave move up. That could be workable;

2) wave A of (B) bottomed at 1069.43 or 1069.63 and we're now in wave B of (B) before another decline in wave C of (B) and then a rally above 1081.58 in wave (C) to complete wave [2]. This is definitely viable. We could even take out the low at 1063.91 and this would still be valid since we could be seeing a wave [2] explanded flat. Its only invalidated if we see a very clear 5 waves down from 1081.58 develop to below 1063.91 since wave (B) can't be 5 waves (but we'd have to watch for that 5 waves being only part of wave (B).

17:22BST - SPX Update: 1 min very close up with various potential counts and levels to watch

There are various ways to count the move down from today's high as you can see from this close up:

SPX 1 min very close up:

I've shown a very bearish possibility as the main count - we're currently in a sub-dividing wave (3) of [3] down. On the labelling shown, we're in  wave 2 of (3). That would be eliminated if we take out the high at 1076.67.

Alternatively, I may have the degrees wrong and we have yet to complete wave (1) of [3] down - we'd currently be in wave 4 of (1)  - taking out the wave 1 of (1) low at 1074.33 would eliminate this count.

Another alternative - the low at 1069.63 may be 5 waves down from today's high (with a slight truncation) for wave (1) or wave A of (B). If its wave (1) down, we can't take out today's high.

The more near-term bullish possibility is that today's high was only wave (A) of [2] and we completed wave (B), at today's low so we're now in wave (C), possibly to that 61.8% retracement level mentioned earlier.

14:50 BST - SPX Update: 1 min very close up

Here's a very close up view of the count for a top that I posted earlier, with what looks like 5 waves down from today's high:

SPX 1 min very close up:

Still, until we see a larger 5 waves down, this may still be wave (B). Taking out the low of Friday at 1063.91 will make that look less probable.

15:25 BST: SPX Update: 15 min chart

You can see that we've hit a nice spot for the end of wave [2] if my previous 1 min close up chart is correct. I think though that if shorting, you need to be aware of the risk of further upside due to the lack of divergences in the indicators as shown on this 15 min chart:

SPX 15 min pitchforks:

15:02 BST - SPX Update: 1 min close up

Here's a possible count into a wave [2] corrective high, with wave (C) being about 1.236 x wave (A). However, I'm not really seeing any divergences between price and the technical indicators at the moment, so this could well turn out to be wrong:

SPX 1 min close up:

Its possible that the rally from Friday's low could be wave (A) of [2] only so we'll eventually see more upside, perhaps to the 61.8% retracement level, so be prepared (also, we may still be in wave 4 of (C) if my labelling is otherwise correct)

14:03 BST - ES Update: 60 min chart

Futures are starting to look like they may be running out of steam. You can see on this 60 min chart of ES that its traded to the upper line of the red fork. Its a specultaive fork since the lower line isn't drawn off a price pivot. However, it does seem to have done a good job of capturing the action since the low on 19 August that touches its lower line:

EX 60 min:

You can see how the rally in price since Friday afternoon took price above the median line of the red fork. Overnight, it had a brief spike down to the daily pivot, bounced back up again and headed to the upper line of the red fork.

It just tried to break above but came back in as it met with the ichimoku cloud resistance.

Now, we're seeing bearish divergence between price and the MACD histogram and the slow stochastic looks like its double topping. If we stay like this into the cash open, the current level of ES suggests a cash price of about 1077 which is about the 38.2% retracement of the decline that I have labelled as wave [1] of iii down (see Friday's end of day update).

If that's where we get to at the open, its  possible that that level will mark the end of wave (A) of [2] and not where I currently have it, so I'd still be alert to the possibility that there is still more upside to come before wave [2] ends. Obviously, this could change if we gap up then just drop below Friday's low. Let's see how the cash opens and what the action in price and the indicators tell us.