Tuesday, 7 September 2010

21:12 BST - SPX End of day update

For both bullish and bearish counts, I was looking for 5 waves up from the 31 August low at 1040.88. 

If you look at the update I posted on Friday  on the bullish counts (you can read it by clicking here), you'll see that for the count shown in chart 1 in that update, it would be wave iii of (i) of [c] in a zig zag. For the count shown in charts 2, it would be wave (i) of [iii] up and for the count shown in chart 3, it would be wave [i] of C up. I did a further update on the bullish counts earlier today, which you can read here.

On the bearish counts, 5 waves up from 1040.88 would complete a 2nd wave correction in an overall downtrend.

For the bigger picture on those bullish counts and the bearish counts set out below, please refer to the 60 min counts page.

Today's action may have left a truncated 5th wave in the 5 waves up I was looking for from 1040.88, or we may still be in the 4th wave of that 5 wave move. 

Here is the position shown on the main bearish count  that has us in a [i]-[ii]-i-ii down from 1129.24, with wave ii as a zig zag (it also applies to the other bearish count where wave ii is an expanded flat, as well as to the bullish counts):

Chart 1: SPX 1 min -  i-ii down from the 1129.24 high:

I've labelled 5 waves up from 1040.88 as complete at 1104.58, but, as I've said above,  its perfectly possible that we just finished the 4th wave of the final 5 up with today's move. That possibility would be eliminated on the bullish and bearish counts if we take out the high at 1087.11, which is the high labelled 1 of (5) in the above chart.

Looking at the bearish count shown on the above chart,  we're retracing the decline from 1129.24.  So far, we've retraced just over 70.7% of that decline. If we only completed wave 4 of (5) of [C] at today's low, for wave 5 and (5) back up, the 78.6% retracement level at about 1110 may be a target.

If we did top at 1104.58 and completed  the first wave down in wave iii with today's early decline, although I can label a 2nd wave retracement complete at 1097.41, its possible we still have more upside in that 2nd wave (its 38.2% retracement is shallow). However, if we start seeing clear impulsive downside action that isn't immediately reversed, the risk of this will be reduced substantially.

Here's a closer look, zooming in on the move from the 1105.10 high at 1105.10:

Chart 2: SPX 1 min - from the 1105.10 high:

The initial decline today certainly looks impulsive but we really need to take out the 1187.11 high to eliminate the possibility that we're still just in wave 4 of (5) of [C]. Until then, the risk of further upside remains.

Even if that level is taken out, since the bullish counts would be in 2nd wave downward retracements if we have completed 5 waves up from 1040.88, the risk of further upside will remain at least until we take out 1040.88. After that level, the bullish counts are still technically valid (unless we take out 1010.91), but would probably be severely damaged.

Obviously, there's no way to tell whether we're in the bullish or bearish counts, so without taking out the levels mentioned above, we can't say if this current decline means the start of a big down move or if its just a pause in a longer term uptrend. We can only continue to identify the levels that the developing elliott wave counts provide which increase or decrease the odds in favour of one count or another.

At the moment, with the counts I'm following, those levels to watch are now as follows:

1) for both remaining bearish counts, we have to stay below the high at 1129.24;

2) if we take out 1129.24, that will eliminate those two remaining bearish counts for the move down from that high and will focus attention on the bullish counts. The first bullish count shown in the update posted today  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;

3) taking out 1087.11 before we make a new high will eliminate the possibility that we are still in a 4th wave correction before a further move up to complete the 5 waves up needed on all counts from the 1040.88 low;

4) taking out 1065.21 will reduce the odds that the bullish count shown on chart 1 in the update I posted on Friday is playing out (see the update I posted today);

5) taking out 1039.70  will eliminate the bullish counts as labelled. Until we take out 1010.91, however, there would still be a possibility that they are in continuing downward corrections, so didn't start their respective bullish moves at the 1040.88/1039.70 lows, but it might then be considered low probability and my focus would switch to the bearish counts.

18:14 BST - SPX Update - 1 min close up bear count and 60 min time and price levels

Here's a possible count for the start of wave iii down:

SPX 1 min close up from 1105.10:

I've shown a count for a complete wave (2), but with the retracement only being 38.2% so far, further upside can't be ruled out. Neither can the possibility that we're still in wave 4 of (5) of [C] up, so yet to complete wave ii.

Its interesting that this move down today has stopped at the first Gann based price target assuming a top was made at 1104.58:

SPX 60 min Gann time and price levels:

The time cycle shown on this chart is the same as that shown on the daily chart I posted last night.

Of course, the fact that we stopped at this first Gann level based on a high at 1104.58 doesn't mean that we have topped at that high. For the moment, we just have to stay below 1104.58 for the bear case and get another 5 waves down (taking out 1087.11 to rule out the on-going wave 4 of (5) possibility).

15:37 BST - SPX - Bullish counts update

Today's decline also fits in with the bullish counts which all needed 5 waves up from 1040.88 as part of their bullish moves off the July low - please see the update on those counts that I posted on Friday.

Here's the close up chart relating to the count shown on chart 1 of that previous update:

SPX 1 min - wave [c] of a zig zag from the July low:

For this count, 5 waves up from 1040.88 is wave iii of (i) of [c] within a minor wave 2 corrective rally. So, if we're now in wave iv of (i), we need to stay above the wave i high at 1065.21 in order not to invalidate the count. If we drop below it, then we'd have to assume that wave (i) ended at the 1040.58 high and that the retracement down would be wave (ii). I can't say it would look very good, so I might then start to prefer the other two bullish counts. However, this bullish count won't be invalidated unless we take out 1039.70. There would still be a possibility then that we are still in wave [b], but again, it wouldn't look that great and the bearish counts might then start looking more likely.

For the other two bullish counts, 5 waves up from 1040.88 would be wave (i) of [iii] for the count shown on chart 2 of Friday's update and wave [i] of C for the count shown on chart 3 of that update. 

So, assuming those 1st waves are now complete, we'd have to stay above 1040.88 on this current pullback (though as I mentioned on Friday, 1039.70 could possibiliy be the starting point and, so the invalidation point for these counts). If we don't, focus would have to switch to the bearish counts.

14:58 BST - SPX Update: wave ii top with a truncated 5th within [C]?

There's a possibilty that, on the bearish counts (see Friday'e end of day update) we topped at Friday's end of day rally in wave ii, with a truncated 5th wave:

SPX 1 min from 27 August low:

Its possible that the (1)-(2) count that put the wave ii high at 1105.10 that I showed on Friday is actually what we've seen, but its certainly easier to count the 5 waves up for [C] that we needed from the low at 1040.88 with a truncated 5th at 1104.58. For this reason, I favour the count shown above rather than the (1)-(2) count with the wave ii top at 1105.10.

Here's a close up showing wave 5 of (5) of [C]:

So, the current count for the bear case puts us at the start of wave iii down. Obviously, this count is invalidated by a move above 1104.58 - in that case, the alternative shown (that today we just had a wave c within wave 4 of (5) of [C] would be the most likely count for the bear case (that could be ruled out if we drop below 1087.11 before making a new high).

14:26 BST - Dollar Update

The dollar looks like it may have completed a 3 wave move off the high of 83.522 at yesterday's low of 81.876 - not far off the 50% retracement level mentioned in my last post.

Here's a 60 min chart:

You can see that even on this time frame we appear to have 5 waves up from that low. If we're starting wave (iii) up then holding the low is, of course, crucial, so that's the level to watch for now. 

We need a controlled 3 wave pullback, at which point, I'll be thinking long with a stop below the low of the pullback or the low at 81.876. With the risk of more downside outlined in my last post, I wouldn't want to give this too much room at this stage.


14:43 BST - FTSE Update

Referring back to my post on 2nd September, the FTSE is looking today like it may now have made that wave up and over its previous high of 5418 I was looking for on both bullish and bearish counts (Please click here to see that post which shows my interpretation of the elliott wave position on FTSE - bullish and bearish).

Today, we've seen what looks like a nice 5 waves down from its recent high at 5459.40. The question now, if we have seen 5 waves down, is whether its a wave A or a wave 1. Obviously, we can't know for sure. We just have to wait and see how it moves back up and once it forms three waves back up, that could be a reasonable place to take a short. However, you'd want to be out above the high of the three waves (or, if your trading rules allow it, above the high at 5459.40).

Here's a view of the FTSE which shows why we may have seen at least a temporary top, aside from the elliott wave count - a confluence of gann fan resistance right at yesterday's high:

FTSE Daily price and time with gann fans:

The green and red fans are drawn with the 1x1 lines connecting the opposite corners of the time and price square (which is based on gann levels). The pink and black fans are drawn from one pivot high across another and from one pivot low across another. You can see that lines from three of the fans crossed at yesterday's high.

Here's another gann chart going back to the February low, showing what appears to be a 48 day cycle from low to high, high to low and now, low to potential high:

FTSE Daily price and time from February low:

Finally, some fibonacci stuff:

FTSE Daily retacement of April to July decline:

As you can see from the chart, in fibonacci terms, we've reached the 61.8% retracement of the decline from the April high - a good stopping point for a 2nd wave retracement if we're in the bearish count. 

Also (but not shown on the chart) the rally from the August low is .618 the length of the rally from the July low to the August high in terms of price, almost to the penny (61.8% would have been 5459.37). In terms of time, its just about .382 x the length of the July/August rally (.618 is the square root of .382).

Finally, as you can see, if you draw an upward pitchfork using the July low, the August high and the August low, FTSE's rally touched the median line of that fork and has backed off from it today. If you're rooting for the bearish count, you want to now see a quick dash for the lower line of the green fork in a move that takes FTSE down and through the median line of the downward blue fork.

Anything less than that, given that the bearish wave count would put FTSE in a 3rd wave down, would have to be cause for concern on the bear case.