Saturday, 28 August 2010

16:11 BST - SPX Update: Weekly, daily and 60 min charts

Looking at the weekly chart (the last post of this is here), not a great deal changed with last week's action. I think it still looks more encouraging for the bear case than for the bullish case:

SPX weekly:

I won't go into any detail here since its all set out in the notes on the chart. The only thing to add is that the moving averages are getting into almost complete bearish alignment - at the moment, the 20ma is still just above the 50ma (and I do mean "just") and they're all pointing down. In addition, the 13ma halted the rallies we saw this week (price having spiked above it last week but closed below). That seems like bearish action.

However, despite this bearish alignment of the moving averages being almost complete and the indicators behaving in a manner which is consistent with a bearish outlook, we still haven't seen real confirmation in price action. That's what I'm waiting for to gain more confidence in the bearish case because, until we see price action confirm, there's always the risk of price moving suddenly in the opposite direction suggested and turning these moving averages and indicators around.

The daily chart hasn't changed a great deal either, but the indicators are positioned to move up from current levels, suggesting that there is scope for more follow through to the rally we saw on Friday:

SPX Daily:

The notes on the chart should be self explanatory. 

Again, the moving averages are configured bearishly and should provide resistance, along with gap resistance (see the 60 min chart below) and fork resistance, suggesting that we ought to see any further rally fairly well contained. 

However, with the indicators poised to move up, we're just going to have to see how they behave on any further upward move in price.  Just because they are positioned to move up or have already started doing so doesn't mean that the bear case is over. I've noted on the chart what I would like to see if any further rally we get is only countertrend and not the start of a major move up. It would be good for the bear case to repeat  what we saw from the indicators in May after the 25 May low, although for the bear case, I don't think we'd necessarily want to see a rally of that magnitude!

SPX 60 min:

Before the open yesterday I showed the 60 and 15 min charts which looked poised to put in bullish divergences against any new price low, which would likely lead to a rally whether on the bullish or bearish case. That's indeed what we saw.

The rally on Friday certainly caused some bullish looking action in the indicators - and yet, its not quite completey bullish.

For example, it was a near 30 point rally in SPX, but the RSI is still not at the bullish level of 66.67. The CCI is still well below zero. The MACD is below zero and on the directional movement indicator, the +DI line is still below the -DI line.

Price is now at resistance represented by the 50ma, a prior gap,  and the upper line of a pink fork that I've added to the chart since I last posted it.

In theory, we should see some reaction to this in the form of a pullback, but its not out of the question that we just gap up above all of this on Monday. 

Whatever price does, I'll be keeping an eye on these indicators to see what they might tell us about the character of the move. Again, I've noted on the chart what I think we need to see in order to favour the bear case.

13:50 BST - SPX Update - Did we see an expanding ending diagonal from 1061.45 to 1039.70?

With trading elliott waves, it always pays to know what the alternatives might be so that you can work out where a particular count that you're trading at a given time might be wrong and when an alternative count might become more likely and take you in a different direction. 

So, I've been looking at the possibility that, on the bullish counts I'm following (see charts 1 to 3 in the end of day update from yesterday) the corrections down from the high at 1129.24 did end at 1039.70 (in that update I have labelled those corrections as needing one more leg down). If the corrections are over, it would mean that we have now started on the substantial rallies that those counts imply.

It all depends, in my view, on being able to count the move down from 1061.45 as the last wave in the correction. As I said yesterday, it has the look of 3 waves, not 5. However, I think it is possible to count an expanding ending diagonal for that move, which would be a 5 wave move and a valid 5th wave to end those corrections.

Here is is close up - its based on the labelling shown in chart 1 of yesterday's end of day update:

SPX 1 min  close up: expanding ending diagonal from 1061.45 to 1039.70:

It seems to fulfill the rules of an expanding diagonal - all waves can be counted as zig zags, wave [3] is longer than wave [1] and wave [5] is longer than wave [3], the lines connecting waves [2] and [4] and [1] and [3] diverge and wave [5] ended beyond the end of wave [3].

In addtion, its said that a diagonal implies a swift and deep thrust in the opposite direction. I think yesterday's move from the low qualifies on that count.

The thing that stands against an ending diagonal here is that its said that they occur where the preceding move has gone too far too fast - personally, I don't think we can say that of the down move from 1129.24. For me, its been quite laboured bearing in mind that the bearish counts put us at a point in the wave structure where we should be seeing severe and impulsive declines (I've mentioned this as a concern for the bearish counts in various intra day posts and on the 60 min counts page over the past few weeks).

However, the count is there and, I think needs to be kept under consideration given the implications it has (a strong upside move to follow).

This way of counting the move down from 1129.24 can also be applied to the bearish counts shown on charts 4 and 6 in yesterday's end of day update.

For the main count on chart 4 it would mean that wave iii of [3] ended at 1039.70 and we would now be in wave iv up. Wave iv would have to stay below 1069.49 in order not to invalidate that count, unless the wave i low should properly be placed at 1076.69, in which case, that's the level at which this labelling would be invalidated.  

On the alternate count shown on  chart 4, it would mean wave [B] of ii ended at 1039.70 and that we'd be on our way up in wave [C].

For the main count shown on chart 6, it would mean wave [1] of iii ended at 1039.70 and we would now be at an earlier stage in a wave [2] correction than the count shown currently suggests, retracing the decline from 1100.14. The diagonal shown from the low would be a leading diagonal wave (A) rather then an ending diagonal wave (C). So, we would likely see more upside once a wave (B) pullback is complete.

For the alternate count on chart 6, it would mean that wave i ended at 1039.70 and that we'd be at an earlier stage in a wave ii correction than the current labelling suggests, correcting the whole of the move down from 1129.24. 

Returning to the bullish count shown above, here's the count on a slighter wider view:

SPX 1 min - complete (a)-(b)-(c) from 1129.24:

You can see that the move up from the low yesterday has broken above the correction channel linking the top of (b) to the start of (a). If price does not fall back within this channel pretty quickly, its going to look like  this ending diagonal down to 1039.70 is valid. It won't mean that these bullish counts must be playing out because, as shown in yesterday's end of day update and as explained above, the bearish counts do also accommodate more upside of varying degrees.

Finally, here's a 60 min chart of this count for greater context:

SPX 60 min - end of correction from 1129.24 on the bullish counts:

So, the next  pullback is going to be important. If the move up from yesterday's low is a diagonal as suggested in yesterday's end of day update, it would be a 1st wave leading diagonal on these bullish counts. That means that the next pullback cannot drop below 1039.70. If it does, this labelling is invalidated. 

However, the labelling shown on charts 1 to 3 in yesterday's end of day update requires another low, so these bullish counts would not be off the table if we do take out that low, unless we also take out 1010.91. 

Assuming we do drop below 1039.70 but do not take out 1010.91, we'd then have to start monitoring how the subsequent move up behaves to try to get an early clue as to whether these bullish counts have ended their corrections or whether the bearish counts are actually coming to fruition.


10:13 BST - SPX : 60 min counts page updated

I've updated the 60 min counts page. Please use the tab in the menu above or click here.