Thursday, 9 September 2010

21:10 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 earlier  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.

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.

You'll see from the update on the bullish counts that I posted earlier that its possible that we have now seen 5 waves up from the 1040.88 low. and I explained in that update what that means in the context of those bullish counts. 

In this update I'll only show that move in the context of the bearish counts.

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

I've labelled 5 waves up from 1040.88 as complete at 1110.27, which would be the end of the wave ii correction.

However, on the labelling shown, I'd feel a bit more confident about this if we were to take out the low of the wave (4) triangle at 1097.23. Assuming wave (4) is correctly labelled as a triangle, that would preclude the possibility that wave (5) is subdividing.

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

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

You can see the count for 5 waves down from the 1110.27 high (I explained the truncated 5th wave in wave (5) of [C] in my earlier update). So I now have us in wave (2) up. Obviously, wave (2) can't take out the start of wave (1) at 1109.92, otherwise, this count is invalidated. 
If this labelling is correct, once wave (2) is complete, we should see a clear impulsive move to the downside in wave (3). If we don't see that sort of wave behaviour, it would raise questions as to whether or not this count is playing out.

So, putting together the bullish and bearish counts, the levels I'm watching are as follows:

1) for the bearish counts, we need to stay below the high at 1109.92. If that goes, it will mean that wave ii is extending 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 earlier  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 1097.23 before we make a new high will improve the chances of the bearish count.  However, it wouldn't be conclusive that the bearish counts are playing out since the bullish counts can easily accommodate a fall below that level in the corrective waves that they would now be in;

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

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.

20:54 BST - SPX - Update on the bullish counts

If we've completed 5 waves up from the August lows, on the bullish counts, we'd now be looking for at least a 4th wave pullback or a potentially deeper 2nd wave decline, depending on where you start the count for those 5 waves. The two possibilities are shown on the 60 min charts below which set out the labelling for the three bullish counts I'm following:

Chart 1: SPX 60 min - zig zag up from July low:

This chart shows wave iii of (i) complete at today's high and now puts us in wave iv of (i). Even on this chart, with wave i of (i) starting at the low at 1039.70, its possible that wave (i) completed at today's high and so we'd now be in a wave (ii) retracement. (see the 1 min chart below).  The difference is that the latter would likely retrace more of the prior up move than the former. 

For the moment, I've assumed on this chart that we're in wave iv down with a possible target at about 1083, the 38.2% retracement. So, I'd be on the look out for a 3 wave move ending in that area. 

If we are in wave iv on this count, its possible that the degree labels are one degree too low and that I should be labelling the move up from the August low as waves (i)-(ii)-(iii) and (iv) of [c] so that once we get wave (v), wave [c] would be completed and it would also be the end of minor 2 up. Certainly, if we take out 1129.24 in the 5th wave that I'm looking for on this count following the 4th wave correction, it'll be something to consider - but it would have to be confirmed by wave action, ie movement consistent with a minor wave 3 down.

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

On this and the following chart, I've labelled 5 waves up from the low at 1040.88, which is where wave i and (i) on these charts started. So, on this and the following chart, I'd be looking for a 3 wave decline ending around the 50% to 61.8% retracement levels between 1075 and 1067.

For this and the following count, we have to stay above 1040.88 otherwise the labelling shown is invalid and would mean that we did not start the next waves up on these counts. However, they aren't technically invalidated completely until we take out 1010.91. Until then, we could simply still be completing their corrective waves down before starting the next leg up. 

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

Here's a closer look at the count on chart 1 above from the August low:

SPX 1 min - wave [c] of a zig zag from 1010.91 underway:

So, the main count on this chart is that we're in wave iv down, probably to around the 1083 area. I've labelled today's decline as wave [A] of iv, but this may need adjustment as the wave develops. 

As mentioned above and as shown by the alternate labels, it may be that we topped in wave v and (i) today (this would be in line with the labelling I showed on this chart in yesterday's end of day update), in which case, the retracement could be deeper, but I'll just wait and see what sort of move down we get - 3 waves into 1083 with a clear reversal back up would start to favour this count.

If we're in wave iv, we have to stay above the wave i high at 1065.21. If it goes below that then I'll switch to the alternate labelling.

On this count, we have to stay above 1039.70 in order not to invalidate the labelling that has us moving up in wave [c] of minor 2. Taking out that low wouldn't invalidate the overall count - that would only happen if we take out 1010.91. However, it would weaken it considerably in my view.

18:29 BST - SPX Update: 1 min close up - wave ii high on the bearish counts?

Although we really need to get below 1097.23, this sudden move down suggests that we may well have seen a top to the move off the August lows which would be wave ii up on the bearish counts. Assuming we did top at today's high, here's how I'd count it:

SPX 1 min close up: 

The move off today's high down to 1106.06 is overlapping but can't be a leading diagonal because the 3rd wave is longer than the 1st. So, I've counted the initial leg down from the high as part of wave (5) up, with the lower high at 1109.92 as a truncated 5th wave. From there, its easier to count 5 non-overlapping waves down to 1106.06, followed by an expanded flat.

On this count, we'd now be in wave 3 down. If its right, the next move back up should be a wave 4 correction and would have to stay below the wave 1 low at 1106.06. If we take that out in an assumed wave 4, it may be possible to count a set of ones and twos down, but that would require the high labelled 2 at 1109.64 to remain intact. Above that, and more upside would probably be more likely.


17:52 BST - SPX Update: 60 min time and price chart

Here's a 60 min time and price chart showing the timelines from the daily, but using Gann price levels based on the 1039.70 August low (the levels on the daily chart were based on the July low):

SPX 60 min - time and price:

You can see that there are some nice divergences on the indicators, which would support a wave count that puts us in the vicinity of a high if we didn't top at 1110.27.

Assuming we did top at today's high, I've calculated some Gann based price targets that may attract price on the way down. Watching price behaviour around those levels (assuming we get to any of them!) might provide a clue as to whether the bullish or bearish counts are playing out. 

If its the bullish counts, then I'd like to see price find support somewhere around the 1077 and 1060 levels and show action suggesting a turn back up. If its the bearish counts, I'd like to see price fall easily through the 1093 level and hesitate only slightly at the 1077 level, but then move quickly down to the lower levels and to below the August low.

15:15 BST - SPX Update: SPX Daily time and price chart on track to turn the market?

This is the update time and price chart I posted on Monday, suggesting that we're nearing a top of some sort, if we haven't already seen it today:

SPX Daily - time and price:

The time and price resistance is consistent with the completion of 5 waves up from the August lows. Of course, this chart can't tell us what that 5 waves represents - we have to use other techniques to try to work that out. Still, although its not, of course, guaranteed to work every time, its looks on track at the moment to turn the market at least temporarily.

15:07 BST - SPX Update: Close up of the bear count

Here's a close up of the count from my last post:

SPX 1 min - bear count close up:

1097.23 is the level that, if taken out, will suggest an end to the rally from the August low, assuming wave (4) was a triangle. We've now hit the 78.6% retracement of wave i down.

Its possible that wave (4) ended at 1091.15, and we're seeing an impulse up from there. Today's rally would be all or part of wave 3 of (5), but there's not a lot of room for it to move up and the wave 4 pullback would have to be very shallow and wave 5 of (5) would have to be quite short.  Still, if that's the correct count, then 1091.15 is the level that needs to be take out.

14:35 BST - SPX Update: best count for the bear case

With not a great deal of room left to the upside for the bear case to survive (1129.24 is the invalidation point), this may be the best count to enable it to make a final 5th wave within [C] of ii without invalidating the [i]-[ii]-i-ii down count:

SPX 1 min:

9:30 BST - Dollar Update

In my last post on the dollar, it appeared that we may have seen the start of wave (iii) up. In fact, the dollar put in a bit more upside from there with what counts quite well as a 3rd wave extension. It then appears to have completed 5 waves up from the 81.876  wave (ii) low, at 82.923. 

Here's a continuation of the 60 min chart from my last post, but zooming in on what I've labelled as a complete wave (ii) correction and the rally from there (you can see a chart of the wider view in my last post):

Dollar 60 min:

I've labelled a [1]-[2] off the wave (ii) low, but wave [2] may not be finished - at the moment, we only have 3 waves up from the wave [2] low. The current decline from the high labelled 1 would be wave 2 (of (3) of [3]) and must stay above the wave (2) low at 82.475 otherwise, the probability will be that wave [2] is continuing down. It retraced 50% of wave [1] at the 82.383 low.  The 61.8% retrace is at about 82.271 and the 78.6% retrace is at about 82.094.

Also, its not conclusive that we've seen the wave (ii) low. We retraced about 50% of wave (i) in the decline from 83.522, buts is perfectly possible that wave (ii) could still be in progress and will go on to make a deeper retracement to the 61.8% or 78.6% levels.

I think it would be more reassuring for long positions if we were to explode up above the correction channel that largely contained wave (ii) (see the red channel lines) and above the green base channel that I've tentatively put in for this rally off the wave (ii) low - if this is an impulse wave it ought to have no difficulty breaking above the upper line of the green channel and not really looking back after that.

Until then, downside risk in a continuing wave (ii) (or the other bearish possibilities outlined on the dollar page) remains. So, the best strategy to minimise the risk is to step aside from long positions if either of the two  pivot lows at 82.475 and 82.383 are taken out - the choice depends on individual risk tolerance.