Thursday, 26 August 2010

21:13 BST - SPX End of Day Update

So far, the main bearish count has lived to fight another day. However,  that doesn't make it right since none of the other counts, of varying  degrees of bullishness, have been eliminated as yet (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).

I showed the charts of the three (potentially) very bullish counts in yesterday's end of day update, so won't post them all again. Suffice it to say that the counts shown in that update still stand and will do so until 1010.91 is taken out. You can read that update by clicking here.

Turning to the bearish counts, and using the degrees applicable to Option 2, 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 1039.83. Yesterday's move off that low and into today's high is counted as wave [4] of iii and we would now be in wave [5] of iii. Here's the view of the count from the 1129.24 high:

SPX 1 min - from 1129.24:

Here's a close up of it from the wave [2] of iii high at 1081.58:

SPX 1 min close up:

So, from today's high, we have what looks like a good start to wave [5] of iii down. But its not conclusive that this is the correct count.

Since we remain above the low of 1039.83, the moderately bullish alternative counts for this overall bearish count remain intact.

The first of those is the one you can see on the first chart above which assumes that we are still in wave ii and have not yet started wave iii. The low at 1039.83 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.

As shown in yesterday's end of day update, there are other counts which might be playing out which would involve more upside before we start a major decline. Theses are shown on the following chart:

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

If the 1039.83 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 1039.83  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 prior updates, 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, having stayed below 1063.91 on the move up from 1039.83,  there's a good chance that the main bearish count could be the one that is playing out. 

However, if, before making a new low below 1039.83, we were to rally up and take out 1063.91, invalidating the main bearish count,  then the logic of elliott wave remains as set out yesterday:

1) the next count to look at would be the  i-ii-[1] which is the main count on the third chart above That would remain valid unless we  take out the high at 1100.14;

2) if we take out that level, then we may be in the expanded flat for wave ii shown as an alternate on the  first chart above, of the main bearish count, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on the third chart above),  or one of the more bullish counts (see yesterday's end of day update);

3) 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 (see yesterday's end of day update) 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 which were summarised in yesterday's end of day update.

It should be said that for the main bearish count, we obviously need to see 1039.83 taken out. However, taking out that level doesn't guarantee that its that count that is playing out. 

One thing I'm looking at is the lack of acceleration down in this move from 1099.77, which I'm labelling as a 3rd wave. Its not really any steeper than the 1st wave of the same degree which is the wave down to 1069.49. Also, we haven't broken the channel you can see on the first chart above - as you can see from my note on that chart, the 3rd wave should have done so.

Maybe we will see that acceleration occur in this wave [5] of iii. But if not, I think the wave behaviour starts to favour one of the other three counts shown above which don't count that section of the move down as a 3rd wave (I'm assuming that the overall bearish counts are playing out and ignoring the more bullish counts for the moment). This is just something to bear in mind. It may be sensible to just let the market rule out the main bearish count either as described above or,  if we make a new low for wave [5] of iii, on the wave iv retracement which would have to stay below 1069.49 for this count to remain valid.

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

This would be the way I'd count this action for the bearish case, but on the slightly more bullish case (shown here) where the decline from today's high is wave (B) in a zig zag, it would, currently, be a zig zag for wave (B). If we can make a clear 5 waves down and take out 1039.83, that would certainly increase confidence in the main bear count:

SPX 1 min close up:

As long as we stay above 1039.83, the risk of more upside remains.

16:55 BST - SPX Update: 60 min chart

There are signs of this rally failing at price and pitchfork resistance on the 60 min chart. The behaviour of the indicators so far seems largely consistent with a countertrend rally:

SPX 60 min:

16:47 BST - SPX Update: 15 min chart

There are some bearish signs appearing on the 15 min chart, but as explained on the chart, we probably need to see more to gain confidence that the next leg down may have started as per the main bearish count:

SPX 15 min:

16:23 BST - SPX Update: Watch out, this may be wave (B) on the alternate counts , with (C) up next

With the count for a top on the main bearish count, we have to be careful here because on the alternate counts for the decline from 1029.24, we've retraced 38.2% of what I have as wave (A) in a zig zag for wave [2] (or ii). Since it looks like 3 waves down from today's high, this could be wave (B). So, we could now be headed up for wave (C) if one of those slightly more bullish counts is actually correct:

SPX 1 min - alternate counts for the decline form 1129.24:

15:55 BST - SPX Update: 1 min close up: Top for wave [4] on the main bearish count - take 2

Well, the ending diagonal was invalidated, but the main count is hanging in there. So, with some re-labelling, here's a count for a top on this one - again, watch the invalidation point (1063.91) since those slightly more bullish and very bullish counts I showed in yesterday's end of day update remain on the table and this count could get invalidated very quickly. I'm concentrating on this one for the moment because its the one that has to top very soon to stay in play and its a good risk reward at these levels:

SPX 1 min close up:

The wave labelled v in the diagonal may have another up leg to go,  but taking out 1055.38 would mean it should be over. If we can take out 1055.38 (the low of wave ii in the diagonal) that would strengthen this count. While that level holds, we're at risk of more upside, so waiting for that level to break, preferably with a 5 wave move down and a 3 wave retracement, would be a safer play and even safer if we take out 1052.59 in such a 5 wave move.

14:51 BST - SPX Update: 1 min close up: possible top on main bearish count

On the main bearish count, this could count quite nicely as a top if it holds - (Y) is 1.618 x (W). If we take out today's high the ending diagonal can be re-drawn and remain valid, depening on how high it goes, if I keep the A and B of (Y) labels at 1056.40 and 1052.59, which is where I had them in yesterday's end of day update. So, its not a write-off if we do take out today's high, but the risk then is that  we go on to invalidate this count (at 1063.93) which could mean more upside, so tight stops required on any short trade here:

SPX 1 min close up:

12:15 BST - Dollar Page Updated

I've updated the Dollar page - use the menu tab above or click here.

9:42 BST - Dollar Update - Possible top for wave (i) of [i] of minor 3 and what to look out for

Yesterday it looked like the dollar was completing 5 waves up from the low of 80.085 which would be wave (i) of [i] within minor wave 3. You can read yesterday's update here.

In that update I mentioned the possibility that we could still be in wave [4] of v of (i), with a little more downside to come, provided we stayed above the wave [1] high at 82.717. Well, we have seen more downside and so far, we have stayed above that level, so the possibility remains that we are still in wave [4] of v and will see a further rally soon in wave [5].

The other possibility is that yesterday's high at 83.522 was wave [5] of v and wave (i), ending, therefore, with a slight truncation. You can see both of these possibilities on this chart:

Dollar 35 min:

I've labelled the truncated end to wave (i) as the main count only because we've broken the elliott channel for wave v, whereas, ideally, a 4th wave should stay within the channel. However, if we rally up hard back into it, and assuming we haven't first taken out the 82.717 high, it'll look like the alternate labelling of a wave [4] low at today's low is playing out. On the other hand, a rally back up to the broken channel line that gets rejected will increase the odds that we did top at 83.522.

So, I'll be watching price behaviour at that lower channel line and also watching that 82.717 level. 

Taking out that price level should confirm that wave (i) is in and that we'd be seeing a retracement down in wave (ii) now. You can see the retracement levels for wave (ii) assuming wave (i) topped at 83.522. There's an obvious support area at about 81.800 which is in the region of the 50% -61.8% retracment, the low of wave iv of (i) and the high of wave i of (i). If we're in wave (ii) down, I'll be on the lookout for a sign of an end to that wave in that area.