Friday, 27 August 2010

21:16 BST - SPX End of Day Update

Well, we got the lower low below 1039.83, but it doesn't appear to have been a 5 wave move from the prior peak at 1061.45, which should mean that it wasn't the end of an impulse wave (whether a wave i, iii, (c) or [c]) down.

That would mean it should be counted as a (X) or (B) wave in an expanded correction.

The following charts show this in the context of the bullish and bearish counts (for the context of these charts, please see the 60 min counts page).

Bullish counts:

Chart 1:  SPX 60 min - single zig zag from 1010.91 still in progress:

This count applies to all the Options on the 60 min counts page.

You'll see on this chart why I don't think we've started the [c] wave up that should occur once the wave [b] correction shown ends. Essentially, we needed 5 waves down from 1061.45 for wave v of (c), but it appears that we only got 3 waves. 

So, this count suggests that we need one more low to complete wave [b] before we launch up in wave [c].

Chart 2: SPX 60 min - first bullish alternate under Option 4: impulse up from 1010.91:

You can see that the the point made in respect chart 1 above also applies here. So, it seems that we ought to see another wave down before we launch into a significant rally.

Chart 3: SPX 60 min - second bullish alternate under Option 4: leading diagonal from 1010.91:

The same comments apply - it looks like we need another leg down before we rally.

Bearish counts:

Chart 4: SPX 1 min - from 1129.24,  i-ii-[1]-[2]-[3]-[4] down from 1129.24:

For the reason explained in relation to the bullish counts, today's low should not be the end of wave iii down even though it went lower than 1039.83, because the move down from the prior high at 1061.45 apppears to only have been 3 waves and 5 waves were needed for wave [5] of iii.

So, it appears to be best counted on the basis of this labelling of the decline from 1129.24 as part of wave [4] of iii.

As shown on chart 4, this count is invalidated at 1070.66, (I've moved the wave [1] label to that low since the earlier posts). With wave ii where it is, that level of 1070.66 may  look better as wave [1], but it does mean that both waves [2] and [4] are expanded flats - not a rule breaker, but it is contrary to the guideline of alternation.

So, although this count remains valid until we take out 1070.66,  because of the issue with the [2] and [4] being the same type, of correction it probably means one of the  other alternatives for the bearish case is more likely to be playing out.  However, for the moment, I'll let the market decide by invalidating it (or not). 

Here's a close up of the count shown in chart 4 count:

Chart 5: SPX 1 min close up:

I've shown a complete ending diagonal for wave (C) of [4], but it could go higher. Wave 5 must, however, stay below 1068.74 to remain shorter than wave 3, assuming I have my labels in the correct place.

If we've completed wave [4] with an ending diagonal (C) wave, we need to drop hard now. A failure to do so raises questions about this count and would raise the odds that one of the alternates for the bearish case (or one of the bullish counts) is playing out.

One of those alternate bearish counts  is shown on  chart 4 above. It has us still in wave ii in the form of an expanded flat. 

Here's a chart with the other two alternate counts for the bearish case:

Chart 6: SPX 1 min - from 1129.24, i-ii-[1] or i:

Both of these counts still look good. 

On the main labelling, we're retracing the decline from 1100.14 so can't take out that high in this wave [2]. So far we've retraced about 38.2% of that decline. It could be enough for a 2nd wave at this stage of the overall bearish count which has us in a 3rd wave down at multiple degrees. However, the diagonal I've drawn in from today's low could be a leading rather than ending diagonal, so would only be the 1st wave of (C).

If we see a 5 wave decline and a 3 wave rally that stays below the high, there's a good chance that we may have topped. Another 5 waves down would have to follow this sequence, whether its an impulse down or a correction before another rally to take out today's high, so once we see another 5 down, we'd than have to stand back and see what happens on the next retracement back up. 

The alternative labelling on this chart implies alot more upside potential since it would be retracing the decline from 1129.24,  so another reason for caution if looking for short entries.

The logic set out in previous days still applies if we invalidate the main bearish count shown on chart 4 above by taking out the low at  1070.66:

1) the next count to look at would be the  i-ii-[1] which is the main count on chart 6 above That count remains 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 chart 4, or the count that has us having only completed wave i down from 1129.24 (the alternate shown on chart 6),  or one of the more bullish counts shown in charts 1 to 3.

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 shown in chart 1 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 which are shown in charts 2 and 3 above.

Have a great weekend!

19:49 BST - SPX Update: 1 min close up: ending diagonal from today's low?

The move up from today's low is starting to look like an ending diagonal:

SPX 1 min close up:

1055.80 remains the level to break to the downside in my view.

18:49 BST - SPX Update: 1 min close up

The wave (2) of [5] of iii count has now been invalidated with the move above 1061.45, so on the main bearish count, I'm looking at today's move as wave [4] of iii. As shown in the last post, this needs to stay below either 1063.91 or 1070.66, depending on where you place wave [1]. Here's the close up:

SPX 1 min close up:

Taking out the low at 1055.80 would suggest that wave (Y) is probably complete. Until then, the wave I've labelled C of (Y) could go higher.

17:31 BST - SPX Update: Nearing a top on the main bearish count?

This would be a good place for a top whether its wave (2) of [5] or, as shown below, wave [4] on the main bearish count - you can make out 5 waves up for (C), but of course, there could be more left in that 5th wave. If its wave (2) it doesn't have much room left before invalidating that count (at 1061.45):

SPX 1 min  - wave [4] expanded flat:

16:43 BST - SPX Update: One of the slighlty more bullish counts under the overall bearish one may be playing out here

I've posted a couple of possible counts for today's move based on the main bearish count  - for details of the main bearish count see the 1st and 2nd charts in yesterday's end of day update. But it may be that we see rather more possible upside if one of the alternates is playing out - see the 3rd chart in yesterday's end of day update. Here's the chart of the alternates showing an expanded flat for wave [2] and retracement levels (but it could be wave ii which could go higher as explained in that update):

SPX 1 min - Alternate counts for decline from 1129.24:

I can't say for certain of course, but it seems less likely that the bullish counts (see here) are playing out at this stage since the move down from 1061.45 to below 1039.83 needed to be 5 waves even for those counts , in order to complete wave (c) or [c] in their corrections down.  I think its very difficult to see 5 waves down from that high without wave 1 - 4 overlap. So, I think the balance of the evidence seems to be that the move down from 1061.45 is part of a correction, not the end of an impulse (whether a wave iii  or [1] or i on the bearish counts or a (c) or [c] wave on the bullish counts). Well, that's my view.

15:34 BST - SPX Update: 1 min close up

Or maybe wave (2) of [5] is forming an expanded flat. This is invalid above 1061.45:

SPX 1 min close up:

15:27 BST - SPX Update: 1 min: expanded flat for [4]?

There's a risk here that we're forming an expanded flat for wave [4] with the way we came up from the low. Something to be aware of:

SPX 1 min - wave [4] forming an expanded flat?

14:42 BST - SPX Update: 1 min close up

Could that have been the finishing touches to wave (2) of [5] of iii down? Its a tight stop if you use today's high. The count labelled would be invalidated if we take out the wave [4] high. We need to see it drop fast like a 3rd wave should if this is right, however:

SPX 1 min close up:

11:12 BST - SPX: links to the charts in the previous post below

If you're getting server errors when trying to view the 60 or 15 min charts in the post below, you can view them on my screencast page:

10:26 BST - SPX Update: The technical picture on the 60 and 15 min charts - setting up to diverge again on a new price low?

The 60 and 15 min charts are suggesting more downside to come, but also that we may see bullish divergences between price and the technical indicators on any new price low. This would be consistent with the main bearish elliott wave count which has us likely in wave [5] of iii down from the 1129.24 high (see yesterday's end of day update). So, any new low below 1039.83 today would be wave [5] of iii of and once that's complete we 'd expect to see a bounce in wave iv:

SPX 60 min:

The notes on this chart tell the story that the indicators and price seem to be conveying to us (you can see the last post on this chart here).

I really like the way that the RSI was unable to get above 50, and the CCI was unable to get above -100, despite the size of the rally from the 1039.83 low. I also like the way that the MACD came back up to test the broken green trend line from below and appears to be failing there - all occuring below the zero line. All of this seems to confirm that the rallies have been countertrend (even though they may not seem like it).

However, you can see from the notes on the chart that we could be setting up for bullish divergences in these indicators against any new low in price. That would be consistent with the main bearish count where I'm expecting a wave [5] of iii low and then a rally in wave iv. That would be in line with my reading of the behaviour of the -DI line making lower peaks, and the ADX line now moving more sideways than up while the -DI is above the +DI. That's consistent with a weakening in the downtrend.

SPX 15 min:

The 15 min chart  (you can see the last post on this here) paints a similar picture - its always good when different timeframes line up.

Again, the warning signs of a potential low of some sort are building - the directional movement indicator is probably doing this most prominently at this stage, with the lower peaks in the -DI and the ADX.

The blue pitchfork that I drew in off yesterday's high may have gained some validity with that late rally testing its upper line and failing there, but we need to see more confirmation that this may be an important fork to watch by seeing price drop to its median line (taking it out of the green fork).

Although I've said above that these charts are consistent with what is expected on the main bearish count, its important to be aware that its also all consistent with a potentially more significant low being formed on the bullish counts. You can see details of these counts on the first three charts in the end of day update from 25 August.

On those counts, any new low below 1039.83 would mark the end of the corrective moves down from the 1129.24 high so the next move up would be the start of a significant rally if any of those counts is actually playing out.

We should get a clue as to whether or not we're seeing something other than a countertrend rally following any new low today, by watching the behaviour of the technical indicators as price rallies. On countertrend rallies, the indicators should behave in the way I've described in the charts above and in the previous postings of them. Its not conclusive and different timeframes can give conflicting views, but if the indicators start to behave more bullishly, especially if we see this across timeframes, then its a warning that the bearish counts may be under threat.

Of course, if we don't get the divergences that appear to be setting up, and the indicators instead just confirm any new price lows, then things may be rather more bearish than the main count suggests.