Monday, 30 August 2010

21:23 BST - SPX End of Day Update

I don't think that today's action has yet clarified whether we saw a bottom on 25 August or on 27 August (the latter would involve counting the last leg down as an expanding ending diagonal as shown in my post on Saturday) or what that bottom might be.

So, both bullish and bearish counts continue to be in contention as shown on the following charts (if you want a wider context for these charts, please look at the 60 min counts page). 

Bullish Counts: 

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

On this count, which applies to all of the bearish Options shown on the 60 min counts page, I'm showing a bottom on 27 August. This puts us at the start of the next leg up. On this count, that would be wave [c] of the zig zag.

This count for the move down from 1129.24, putting the low at 27 August can also be applied to the other two bullish counts below, and would make the rally off the 27 August low the next wave up in their respective counts. 

However, for current purposes, I'll retain the low on the those charts at the low on 25 August, which means one more new low is required to complete their corrections before they start their next legs up. Of course, this count could equally apply to Chart 1 above, with the same implications.

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

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

So, even if we make a new low under the low of 27 August at 1039.70, while that would invalidate the count shown on Chart 1 above, the count shown on Charts 2 and 3 above (which can also apply to Chart 1) would simply mean a delay in the next leg up envisaged by these bullish counts and would not invalidate them. They would only be invalidated if we take out the low ay 1010.91.

Bearish Counts:

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

This count retains the low at 25 August and counts Friday's high as wave [4] of iii down. I've labelled wave [4] as over at Friday's high. If it in fact has more upside to go, it has to stay below 1070.66 otherwise this labelling will be invalidated.

If we actually bottomed at the low on 27 August, using the expanding ending diagonal shown in Saturday's update, then that low was probably wave iii , which would make the rally from there wave iv not wave [4]. If that's right, any further upside in wave iv must stay below 1069.49, otherwise that alternative would be invalidated. This wouldn't be the best looking count since wave iii wouldn't be that much longer than wave i and really, it ought to have broken down out of the channel shown, unless we're going to see that sort of acceleration down in wave v.

For the moment I'll stick with the main labelling on the chart. If we can take out the wave [3] low without first making a new high above 1065.21, that would certainly provide more confidence in this count. However, as I said in Friday's end of day update, it does mean that wave [2] and [4] are both expanded flats so it may not be the best count.

Still, its valid. Here's a close up showing the decline from 1081.58:

Chart 5: SPX 1 min close up:

The leading diagonal possibilty I showed in the last post on this count was invalidated because what would have been the 5th wave became longer than the 3rd. That leaves the nested ones and twos - that certainly looks better with the late sell-off, but of course, we need more follow through. And, if the labels are correct, the next rally would be wave iv of 3 of (3) so can't end above the wave i of 3 of (3) low at 1053.57.

If we take out either or the levels mentioned above, 1070.66 or 1069.49, before making a new low, attention for the bearish counts would have to switch to the alternatives I've been showing. One is labelled on Chart 4 above - an [A]-[B]-[C] expanded flat for wave ii which could take us above the high at 1100.14.

The other two near term bullish counts within the bearish counts are shown in the chart below:

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

Both of these counts have scope for further upside. On the main count, its more limited since we're retracing the decline from 1100.14 and can't take out that level on this assumed wave [2]. On the alternative count, we're retracing the decline from 1129.24, so a good deal more upside is perfectly possible.

I've relabelled the main count as a (W)-(X)-(Y) for wave [2], which would mean one more up leg to come for C of (Y) of [2]. However, its perfectly possible that it topped at 1065.21 with an ending diagonal (C) wave as shown  in Friday's end of day update. However, the decline from Friday's high can be counted as a double zig zag in progress (as well as the ones and twos shown on Chart 5 above), so the risk of further upside remains in my view, unless we take out the 1039.70 low (even then, I'd have to consider the possibility of a flat or expanded flat in progress with more upside to come).

You'll see I've also noted on this chart the possibility that the low for either the main or the alternative count was on 27 August, not 25 August, using the count shown in Saturday's update with an expanding ending diagonal into the low at 1039.70.  In that case, we would be at a much earlier stage in the upward corrections and would more than likely see further upside before the declines resume.

So, we remain in a position where there are many possibilities as to what is playing out. In that situation, all that can be done is to identify the levels that would invalidate the various counts and let price action tell us. The elliott wave logic I've set out in previous updates cotinues to apply as follows:

1) if we take out the low at 1069.49 before making a new low below 1039.70, then that would rule out the possibility that we ended wave iii at that 1039.70 low and were rallying in wave iv (see comments under Chart 4 above - the possibility of a wave iii low at 1039.70 is shown on Chart 5);

2) if we take out the low at 1070.66 before making a new low below 1039.83, that rules out the main count shown on Chart 4 above;

3) 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;

4) if we take out that 1100.14 high, 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 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.

20:17 BST - SPX Update - 1 min - immediately bearish count

Well, the market's got a sense of humour today. In my last post on the immediately bearish count I disposed of a count of three nested ones and twos and a leading diagonal from Friday's high. Subsequent action is forcing them back on me!

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

If its nested ones and two, the first invalidation point is the wave 2 high at 1059.87. If its a leading diagonal, a rally that reaches the dotted blue line before we make a new low below 1053.57 would invalidate that.

18:29 BST - SPX Update: 1 min: moderately bullish counts

This is how the slightly more bullish count shown in the earlier update is looking - it probably looks better at this stage than the immediately bearish count, but we have to see how the price action develops:

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

18:23 BST - SPX Update: 1 min chart - most bearish count

On the most bearish count, the potential leading diagonal I mentioned in the last post didn't work out because the bounce off the low at 1056.22 has meant there's no longer converging lines. The ones and twos count from Friday's high is a possibility, but it would now be three sets of ones and twos, if I keep the labels as they were in the last post, which may be unlikely. This leaves the following:

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

Its not the greatest of counts because within wave (1), there would be a very large wave 2 and a very small wave 4. However, it is there and for this immediately bearish case, may be the best available count.

We'll have to see if the market will now follow through as it should on this count. It will be invalidated of we take out the high at 1062.31 in this assumed wave 2 of (3).

16:27 BST - SPX Update: 1 min charts of the bearish counts

This is the count shown in chart 4 from Friday's end of day update, looking at it from the 1081.58 high:

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

The count is still valid, but note that wave [4] could be at the 1061.45 high as discussed in my update on Saturday, so we'd now be in wave iv, not [4].

Taking out today's low would increase the odds of the (1)-(2)-1-2 shown from Friday's high, or we could be seeing a leading diagonal forming from that high, with what I've labelled as wave 2 being the 2nd wave of the diagonal. The wave 2 and (2) highs would be invalidation points for the ones and twos count. Moving above the wave 2 high without a lower low would likely invalidate the diagonal count.

The slightly more bullish counts shown on chart 6 in Friday's end of day update, but with a wave [1] or i bottom on Friday (based on the count shown on Saturday) also remain in play, however:

SPX 1 min - i-ii-[1]-[2] or 1 down from 1129.24:

This assumes that the decline from Friday's high is only part of the upward move from Friday's low. I've labelled it as wave (B) to today's low, but it could just be wave W within (B) as noted, so more downside here doesn't make this count any less likely than the immediately bearish one above. That might change of we take out Friday's low.