Wednesday, 25 August 2010

21:17 BST - SPX End of Day Update

Well, we got the 5th wave down that we wanted to see from the 1081.58 high. However, exactly what this represents in the context of the move down from 1129.24 remains an open issue. There remain both bullish and bearish counts (you'll need to read the 60 min counts page if you want to see the context of the following charts and to understand the reference to the Options mentioned on that page).

Bullish Counts:

SPX 60 min - single zig zag from 1010.91 still in progress:

This count applies to all the Options shown on the 60 min counts page. It means more upside before the overall bearishness of the counts shown under those Options takes over and pushes the market down.

It wouldn't be ideal if we take out today's low, but if that happens in an extending 5th wave within wave (c) of [b], that's fine. However, it has stay above 1010.91, otherwise the count will be invalidated.

SPX 60 min - first bullish alternate under Option 4: impulse wave from 1010.91:

Again, taking out today's low wouldn't be ideal, but as long as we stay above 1010.91 this count is valid.

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

The comments made under the first two bullish counts apply here too,

In all of these bullish counts, the next move up should be an impulse wave which carries the market above the 1129.24 level and, in the case of the bullish counts relating to Option 4, to new highs above 1219.80.

A lack of impulsive upside action will call these counts into question, though until we fall below 1010.91, they will remain viable.

Bearish counts

The main bearish count remains that we are in a i-ii-[1]-[2] down from 1129.24 and completed wave [3] in that sequence at today's low:

SPX 1 min - from 1129.24:

On the basis of this count, we're seeing wave [4] of iii play out at the moment. That being the case, we can't take out the low of wave [1] of iii  (at 1063.91) in this wave [4] since that would invalidate the count.

If that were to happen, you can see the alternative count shown on this chart which assumes that we are still in wave ii and have not yet started wave iii. The low today would be wave [B] of ii in an expanded flat. Currently, the move down from 1100.14 can be counted as a zig zag for wave [B]. This would mean a substantial rally would now take place in wave [C] of ii, likely to above 1100.14.

Here's a close up of the main count:

SPX 1 min close up:

Really, we need to start dropping now in wave [5] of iii since there's not too much more room available for wave [4] to move up without invalidating the count.

As shown in yesterday's end of day update, there are other counts which might apply if we do invalidate the first bearish count above. One, the leading diagonal wave (i) down from 1129.24, was invalidated today with the move below 1040.39, but the other two shown in this chart remain valid:

SPX 1 min - from 1129.24, wave i-ii-[1] or wave i down:

Either of these counts look good at the moment. The difference between them is the level of retracement we may see. 

If today's low was wave [1] of iii then we will now be retracing up in wave [2] but we can't exceed the high at 1100.14, otherwise, this count is invalidated.

If today's low was only wave i, then we could, in theory, retrace all the way back up to 1129.24 without invalidating the count. However, as explained in yesterday's end of day update, we'd probably be more likely to see a 50%-61.8% retracement (and preferably the lower end of that) given that the larger count has us in wave [iii] down.

So assuming we made a low today, we need to watch the behaviour of the move up to try to determine which of the above counts may be playing out. If we stay below 1063.91 on this current rally, the chances are that its the main bearish count shown above. 

If not, then the next count that could be excluded is the i-ii-[1], if we take out the high at 1100.14.

If we take out that level, then we may be in the expanded flat for wave ii shown as an alternate on the chart of the main bearish count above, or the count that has us having only completed wave i down from 1129.24, or one of the bullish counts. 

If we take out 1129.14, that will eliminate those two remaining bearish counts for the move down from that high, but the first bullish count is, you'll recall, bearish once wave [c] of 2 completes. If that count is in play, we would need to see impulsive downside action once wave [c] and 2 end, otherwise, focus will have to switch to the bullish counts under Option 4 above.

19:29 BST - SPX Update: 1 min close up: top in or close if we're in wave [4]?

If this is wave [4], although we haven't yet reached the 38.2% retracement, we have filled today's gap down, so its possible we could have topped here or be about to complete a top:

SPX 1 min close up:

Waiting for a 5 wave move down and a 3 wave retracement would be the safer course if you're not into trying to pick tops, however.

17:51 BST - SPX Update: 1 min close up

Its possible that, assuming this is wave [4] of iii, it ended at 1050.22 (its a 23.6% retracement) - I could count the move up to there from today's low as an (A)-(B)-(C) move (wave (C) would have a big 4th wave). However, for the moment I'm labelling the move up from the low as only part of wave [4]:

SPX 1 min close up:

I'd be doubting this count if we take out 1041.62. If the count is right, we could get to the 38.3% retracement level at about 1055 before wave [4] ends.

16:27 BST - SPX Update: 1 min close up

So far, it looks like 3 waves up from the low today. I've labelled it as wave (W)  followed by a wave (X) in anticipation of more upside if we are in wave [4] of iii, but its possible that we're still in wave C of (W):

SPX 1 min close up:

The risk is that today's low was only wave 1 of (5) of [3] and now we are really only in wave 2 of (5) of [3], so that wave (5) of [3] is extending. Since wave [3] ended in the area I mentioned at the end of yesterday's end of day update, I'll stick with the assumption that we're in wave [4] for now. If we take out the B wave low at 1041.62, it'll start looking like the extended 5th wave may be playing out.

15:30 BST - SPX Update: 5 and 15 min charts: bullish divergences indicate conditions in place for a low

Here's the updated 5 min chart I posted earlier (see the earlier post here) which suggested we might see some bullish divergence between the indicators and price on a new low in price today:

SPX 5 min:

And here's the 15 min chart (I've left the comments as they were for the moment):

SPX 15 min:

The divergences show that the technical conditions for at least a short term bottom exist.

It doesn't, however mean that price can't keep falling - it will do if bearishness remains strong. The divergences are just warnings to stay alert for price action that might signal that a low of some sort is in. Its important to await such action because divergences can be eliminated if price continues to move down.

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

Obviously, if this count is correct, we can't take out today's low, so it could be invalidated quite quickly:

SPX 1 min close up:

If we do have a wave [3] low, the retracement levels are shown. They assume we're only retracing the decline from 1181.58 in wave [4] of iii. This means we can't end above the wave [1] low at 1063.91 (its not visible on this chart but you can see it in the first chart in yesterday's end of day update).

If we take out today's low, the labelling will need re-adjustment - it may be we will be getting an extended wave (5).

14:44 BST - SPX UPdate: 1 min close up - on alert for a possible bottom

Its difficult to tell if this move down is over, but having got the low below 1046.68, we've certainly fulfilled the requirements for the completion of 5 waves down from 1081.58. So, I think we need to at least be on alert for a possible bottom somewhere around here (for what that might mean, see yesterday's end of day update):

SPX 1 min close up:

13:04 BST - Dollar Update - Nearing 5 waves up from 80.085?

The dollar index looks like it may be in wave [5] of v of (i) up from the low at 80.085. You can see from the elliott channel I've drawn in that a possible target for wave v could be the upper line of the channel which is at about 83.780-ish, depending on where wave v hits it. That's also about where wave [5] of v would be about equal to wave [1] and about where wave v would be approximately 1.236 x wave i:

Dollar 30 min:

Of course, its possible that wave [4] of v is still playing out, in which case, we'd see more downside before wave [5] kicks in. That's just something we'll have to watch out for.

If we are completing wave [5] and wave v and wave (i), we're going to get a pullback in wave (ii) next which could be steep. We'll just have to wait and see, but the wave count suggests that the next tradeable move could be to the downside.

9:41 BST - SPX Update: Technicals on the daily to 5 min charts

Here's a quick run through the non-elliott wave analysis from the daily to the 5 min timeframes:

SPX Daily:

You can see from the notes on the chart that the indicators look pretty bearish, so not much here to support a serious bullish move at the moment.

We're at an interesting place with regard to the pitchforks. That large green upward fork is at risk. Yesterday's decline took price right down to its lower line, but that's where we bounced. You might recall my 60 min chart from early in yesterday's session that showed price void right down to 1010 and the market was right into that void. Clearly however, traders looking at pitchforks would have been looking at support from the forks, despite the lack of support from prior price congestion so this may have been one reason why the market stopped falling where it did.

SPX 60 min:

Again, you can see from the notes on the chart that the indicators pick up on the bearish theme of the daily chart.

The rebound from yesterday's early low also occurred at an interesting place on this timeframe as far as the forks are concerned - right at the intersection of the lower line of the blue fork and the median line of the red fork.

The rebound took price back to the median line of the blue fork, but that is also the prior pivot low that should have provided support, but that was broken yesterday (lower dotted green line) and price seems to have found resistance there.

In a downtrend, the type of sideways move we saw for most of yesterday builds an area that should provide resistance in the future, provided the downtrend continues (in an uptrend areas of resistance get broken easily). So, provided we break down below the congestion area created yesterday, this congestion should become future resistance to any countertrend rally.  Of course, if we break above it instead of below it, then it should become support and that would potentially be at least short term bullish.

SPX 15 min:

Moving down to this timeframe, while the indicators paint a bearish picture in line with the higher timeframes, it looks  to me like there is potential here for the indicators to diverge bullishly against the next low in price. I've noted this in my comments on the chart. 

This would be in line with the wave counts which suggest that the next low should be a 5th wave of some degree (and what that would mean would differ depending on which wave count is playing out - I explained some of the possibilities in yesterday's end of day update which you can see here) and its on 5th waves that divergences tend to occur.

You can see that I've drawn in a new downward blue fork using yesterday's low and the late afternoon high. If we're going to see a 5th wave down from 1081.58 then we might see price try to get to the median line of this fork and possibly fail, which would be near term bullish. If the 5th wave extends then we could see this fork lead price down to the median line of the larger red fork. If we break up out of this blue fork instead of down and the breakout is not quickly reversed, that could be a bullish sign, so should be considered as at least a warning of more upside to come.

SPX 5 min:

The potential for the indicators to diverge bullishly against price on the next price low is probably more obvious on this timeframe. If the 5th wave that's expected extends, then it may not happen, but I think the possibility is there and is worth watching for.

So, the expectation is for a low below 1046.68 at some point today and before we move above 1069.43 so that we get 5 waves down from 1081.58. This would certianly make the counts look complete even on the three bullish counts I have which you can see summarised here.

If we don't get the new low and instead take out the 1069.43 low (meaning we only had what on the face of it looks like 3 waves down from 1069.43), then something else is happening. 

One possibility is the expanded flat for an on-going wave ii that I've shown as an alternate count over last few days and is shown as the alternate count on the first chart in yesterday's end of day update. If we don't get the expected 5th wave down below 1046.68, the decline from 1100.14 to 1046.68 could count reasonably well as a double zig zag for wave [B]. If that is playing out, we'd expect to see a [C] wave rally to above 1100.14 in wave [C]. We'd have to stay below 1129.24 for this count to remain valid.

Another possibility is the leading diagonal for wave (i) down shown on the third chart in yesterday's end of day update. If that did complete as I've labelled it on that chart, at the low of 1046.68, then we would expect to see a substantial rally in wave (ii) retracing the decline from 1129.24.

So, whether we get the 5th wave that's expected or not, the balance of probabilities suggests that we should see some upside  fairly soon - to what extent will depend on the wave count that is playing out, as explained in yesterday's end of day update. The count shown on the first chart in that update allows for only a very moderate bounce and it could be invalidated quickly on any strength, leaving the other counts shown in the end of day update and in the post on the bullish possibilities to battle it out.