Wednesday, 8 September 2010

21:19 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 chart 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 yesterday, 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.

We're still really no further forward than we were yesterday on the question whether we've completed those 5 waves up or whether there is still another leg to go.

You can see the possibilities on the bullish and bearish counts below, starting with the bearish count:

Bearish case  

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, its perfectly possible that yesterday's low at 1091.15 was the 4th wave of the final 5 up so today's move would be the start of the final 5th wave up within wave ii. That possibility would be eliminated  if we take out that low.

For this count to regain the focus, we now need to stay below 1103.26 and take out the low at 1091.15 in a  clear impulsive downside move that isn't immediately reversed. Otherwise, the risk of further upside remains.

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:

You can see more clearly from this chart why the low at 1091.15 needs to be take out for this count to become higher odds. If we don't take out that low, the risk that we still have more upside in wave ii remains.

Bullish Case 

Here's the bullish count shown on chart 1 in the update on the bullish counts posted on Friday (but the count for 5 waves up from 1040.88 applies to the other two bullish counts in that update as well):

Chart 3: SPX 1 min - wave [c] of minor 2 up:

On this count, the 5 waves up from 1040.88 is wave iii within wave (i) of [c] of minor 2.

If wave iii topped at 1104.58, then we'd now be in wave iv. But, you can see noted on the chart, the possibility that wave iii topped at 1105.10 and wave iv ended at 1091.15 so we'd now be in wave v of (i) up. That's eliminated if we take out 1091.50. I think wave [5] of iii looks better as 5 waves if it ended at 1104.58 even though it would then have truncated slightly, which is why I've labelled it at that high.

Its also possible that we're only in wave (4) of [5] of wave iii, so have yet to see a wave iii top. You can see this in the following chart which shows this bullish count closer up:

Chart 4: SPX 1 min - wave [c] of minor 2, close up from 25 August: 

Its probably a less likely option, but needs to be borne in mind.

So, on this count, if we take out 1091.15 without a new high above 1103.26 first, it'll increase the likelihood that we're in wave iv down. If we take out the 1103.26 high, the likelihood increases that we are in wave v (or possibly still in wave iii) of (i) up and we'd probably move quickly above the highs at 1104.58 and 1105.10 before we see and end to wave (i).

So, after today's action, the levels I'm watching are as follows:

1) for the bearish counts, we need to stay below the high at 1103.26. If that goes, its likely we'd soon see a move above the high at 1104.58 also, meaning that wave ii was continuing higher. We'd then have to stay below the high at 1129.24 otherwise the [i]-[ii]-i-ii count will be invalidated (it could still be a [i]-[ii], however, as explained on the 60 min counts page);

2) if we take out 1129.24, that will focus attention on the bullish counts. The first bullish count shown in the update posted yesterday  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 1091.15 before we make a new high will increase the odds that 5 waves up from 1040.88 completed at 1104.58. On the bullish counts that would be a temporary high which would be taken out once a corrective decline completes. On the bearish counts, it should signal the start of the next impulse down which would be a 3rd of a 3rd wave at various degrees;

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 (also see the update I posted yesterday);

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.

19:23 BST - SPX Update: 1 min close up - watching 1103.26 and 1091.15

This next move up could be telling if my labels are correct:

SPX 1 min - close up:

I've re-labelled the degrees of the drop from my last post. I've also re-labelled the alternative count - that's why we need to get below 1091.15 for the bearish (1)-(2) count. And if course, for that count, we now have to stay below 1103.26.

19:05 BST - SPX Update: 1 min - wave (2) up topped?

The (1)-(2) count has suddenly become more attractive:

SPX 1 min - (1)-(2) down?

For now, anyway!

The next rally needs to be a controlled 3 wave affair, preferably not too deep and really, we need to take out the 1091.15 low now.

18:07 BST - SPX Update: 1 min close up - Now ot never for the (1)-(2) down

Last chance for the (1)-(2) down from the 1104.58 high - I can see a subdividing wave 5 of (5) up starting to develop:

SPX 1 min close up - (1)-(2) down complete or subdividing wave 5 of (5) of [C] up:

If the (1)-(2) count is to remain valid, its got to drop now, otherwise the alternative labelling showing us currently in wave iii of 5 of (5) up comes into play. If we take out 1099.93 (the low labelled "or 2"), before making a new high, the alternative labelling will look ropey. It'll look even less likely if we drop below 1095.97 (the low labelled "or ii") before making a new high.

16:41 BST - SPX Update: 1 min close up

Its difficult to see today's rally as a straight impulse if we're in wave 5 of (5) of [C] to complete wave ii up. It could be a leading diagonal for the first leg up within wave 5, but it didn't make a very deep retracement for the second wave if it was a leading diagonal. Maybe its a developing impulse (these choppy looking waves do have a tendency to just keep going up and develop into impulses) but at the moment it probably looks best as a wave Y correction within wave (2) as shown on this chart:

SPX 1 min close up:

At least for the wave (2) count the invalidation point is close by at 1104.58 and, as I've said previously,  until we see impulsive downward movement, the risk of further upside remains - if we could get 5 waves down to about 1087, without a new high above 1104.58, this wave (2) count would look like a good bet.

To the upside, the next levels I'm looking at if we're in 5 of (5) of [C] up are at about 1107 and 1125.

15:03 BST - SPX Update: 1 min close up wave (2) correction or wave 5 of (5) up both still valid

The risk of further upside either in a continuing wave (2) or  in wave 5 of (5) of [C] (to a high above 1104.58) was highlighted yesterday.  Here's how I'm looking at today's rally:

SPX 1 min close up:

Both possibilities remain equally valid. The wave (2) count is invalidated above 1104.58 on this count. If that's taken out, then the wave 5 of (5) of [C] to complete wave ii on the bearish count will become the focus. If we don't take out 1104.58 then it'll look like we did top at 1104.58.