Wednesday, 15 September 2010

21:19 BST - SPX End of Day Update

There was no new high for the rally from the August lows, so on the bearish [i]-[ii]-i-ii count it remains possible that wave ii completed at yesterday's high with wave [C] of wave ii as an ending diagonal which started at 1040.88. 

However, we didn't take out 1110.27, so the possibility of a further high above 1127.36 remains on the near term bullish count (the zig zag from 1010.91 - Option 3) and the more bullish counts (the bullish alternatives under Option 4)

For the bigger picture on the bullish and the bearish counts  and the Options referred to, please go to the 60 min counts page.

Today's initial decline appeared to be a good start for the immediately bearish case. However, so far, there's been no downside follow through so  there remains doubt that an immediately bearish count is playing out.

Here are the charts:

Chart 1: SPX 1 min - ending diagonal from 1040.88:

This shows the whole of the move up from 1040.88 as an ending diagonal for wave [C] of ii. Wave (4) didn't overlap wave (1), but the EWP book suggests that that can happen and since it otherwise looks like a diagonal, with the overlapping waves, it would seem to be OK to label it as such.

I've retained the labelling of a complete diagonal, but, given that we haven't declined significantly its possible that the high at 1127.36 was only wave (3) and that we saw wave (4) today. I've shown this as an alternative on the above chart. This would mean a further high to come, above 1127.36 to complete it.  If that's the case, wave (5) has to stay below 1129.24, otherwise the [i]-[ii]-i-ii count is invalidated.

On the bullish counts, this diagonal would be a leading diagonal for a wave (i) or [i] up.

Here's a closer look:

Chart 2: SPX 1 min - ending diagonal from 1040.88:

As you can see, I've labelled a series of ones and twos down if we assume a top at 1127.63. The invalidation point for this count is 1126.57, although a 1-2 down isn't entirely ruled out until we take out the high at 1127.36 (we'd be looking at an expanded flat for wave 2).

However, if we did top at 1127.36, we really need to start seeing more decisive downward moves without the deep and immediate retracements. It may be we're on the verge of seeing that if these ones and twos start to play out as they should. Until then, the jury's out on an immediately bearish case.

For the alternate shown, we have to take out the high at 1127.63, since wave (5) has to move beyond the end of wave (3) in a diagonal. However, on this bearish [i]-[ii]-i-ii count, we also have to stay below 1129.24. 

If there is more upside to come and we take out the high at 1129.24, then that will invalidate the overall [i]-[ii]-i-ii count. As explained on the 60 min counts page, that would still leave a [i]-[ii] count (so we'd be in wave [ii], not wave ii). However, taking out that high would, in my view, make the count for a zig zag from 1010.91 the best bearish option.

Here's the count for 5 waves up from 1039.70 which would be all or part of wave [c] of the zig zag up from 1010.91 under Option 3 (and it would also apply to the bullish alternate counts shown under Option 4 on the 60 min counts page):

Chart 3: SPX 1 min - 5 waves up from 1039.70:

For the moment this count for 5 waves up from the August low could be complete at 1127.36. However, the alternative labelling suggesting that we only completed wave [3] of v at the 1127.36 high remains valid since we haven't dropped  below 1110.27 (the wave [1] of v high).

If that alternate is playing out, I'd count the move up from today's low as a wave (1) leading diagonal and we'd now be in wave (3) (you can see the leading diagonal on chart 2 above where its labelled as a wave A).

So, after today's action, here's what I'm watching:

1) for the [i]-[ii]-i-ii count, we need to stay below 1127.36 if wave ii completed at that high. If not, we have to stay below 1129.24. If we take that out, this count is invalidated;

2) if we completed wave ii (shown in charts 1 and 2 above) or minor wave 2 (shown in chart 3 above) at the high of 1127.36, we need to see price action to confirm: we need to stay below that high, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we still haven't seen this. Taking out 1101.53 in an impulsive move might help to increase confidence that a top of some sort has been seen, but, in my view, it would have to be followed swiftly by a move below 1091.15;

3) if we take out 1129.24, that will focus attention on the zig zag from 1010.91 count and the bullish counts under Option 4. That zig zag would be minor 2 up, as shown in the update posted last Thursday,  and its bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it at the 1127.36 high or be on the verge of doing so, or the move up from 1039.70 could just be wave (i) of [c]  of 2;

4) if we take out 1039.70 on the next move down, that would confirm the completion of wave 2 as a zig zag. It would also eliminate the two bullish counts under Option 4 (although they remain potentially in play in some other form until 1010.91 is taken out).

18:37 BST - SPX Update: Possible leading diagonal alternative on the bullish count

Addendum to my last post - possible leading diagonal for wave (1) of [5] on the near term bullish count - see the blue dotted line:

SPX 1 min - bullish and bearish counts - leading diagonal possibility:


18:22 BST - SPX Update: Bullish and bearish counts from 1127.36

Here's a close up of the move from the high of 1127.36 showing both bullish and bearish counts:

SPX 1 min - bullish and bearish counts for the move from 1127.36:

The initial move down today looks impulsive; the rally from there looks overall corrective but that doesn't rule out an impulse in development as shown by the alternative labelling.

Basically, we could go either way at the moment - the levels to watch for both counts are on the chart.

17:48 BST - SPX Update: Bearish count still valid

The bearish possibility remains valid with some label adjustments, provided we don't take out 1126.57:

SPX 1 min - bearish count:

Taking out the low at 1119.02 would be an indication that this count has a reasonable chance of playing out. At the moment we only have 3 waves up from today's low, but if its an impulse up it could be doing a series of ones and twos, so taking out that low would exclude that, as things currently stand.

Once again, though, the character of any decline is important - we need something clearly impulsive to the downside if there's any chance that we topped yesterday. Without that, the risk of further upside remains (see the alternative labelling on chart 3 in yesterday's end of day update for the possibility of another leg up to come).

16:06 BST - SPX Update: ones and twos down?

This is how I'd count today's move on the bearish case at the moment:

SPX 1 min - 1-2-i-ii down from 1127.36?:

If we take out the high at 1122.39 this is probably wrong, though the labelled count isn't invalidated unless we take out 1126.57. However, unless we see some decisive downward movement, that moves quickly and signifcantly below today's low, its more likely to be wrong. So, watch  price levels and the manner of any downward move. 

As shown on chart 3 in yesterday's end of day update, we could just be in wave [4] of v up. If today's low is that wave [4], we'd be on our way to a further high above 1127.36.

In favour of the bear case - 1122.39 was a 61.8% retrace of wave i and it was also a nice back test of the lower line of the ending diagonal shown  on chart 1 of yesterday's end of day update.

14:23 BST - SPX Update: Cycles from March 2000 high suggest a turn is close

Here's a chart of two cycles that start from the March 2000 high and which have clearly continued to influence the market, marking some signifcant turns, including the 6 March 2009 low and the April 2010 high (the red cycle also caught the October 2007 top):

SPX Daily: Cycles from March 2000 high - larger view:

The grey lines mark the larger cycle while the red lines mark the smaller cycle. Between them they've done a pretty accurate job of catching turning points, although I've marked with red boxes three occassions where a turn didn't occur on the grey cycle.

So, its not perfect, but using a good trading system, which includes stop losses, with these cycles would limit any losses at times when the cycles don't mark turns. Essentially, it boils down to waiting for price action that suggests a turn and not just trading on the basis of a move into a cycle line.

Here's a zoomed in look:

SPX Daily Cycles from March 2000 high:

You can see that the August lows came at a point where the grey and red cycles coincided.

We're now at a red cycle line, but no signal has been given by price action as yet. It may well be that we continue up or sideways (see, for example, the sideways moves into the grey cycle in early and late August, each of which were followed by big moves) into the next grey cycle line where a red cycle line is also located only a day apart. Those two lines come in on 22 and 23 September.

However, the daily chart showing the cycle I've been following from the April 2010 high  (see the last post on that here) suggested a turn due on 10 September. We're still within that time frame. Interestingly, that cycle's next date is 22 September.

So, timewise, there's reason to be on the look out for a turn. Looking at the elliott waves, there are reasons to be looking for a turn, even on the bullish counts (see yesterday's end of day update). On the 60 min technicals, there are reasons to be looking for a turn (see the divergences on the chart in this post from yesterday).

Its a good recipe for a turn. However, the missing ingredient is price - we just have to await price action that suggests a turn (and then assess the action to see how significant any turn may be - the cycles can't tell us that).

10:28 BST - Dollar Update

The risk of further downside referred to in my last update on the dollar (which you can read here) in the absence of impulsive upward movement to confirm a low, played out once again, negating the count that assumed the start of wave (iii).

Here's the 120 min chart showing the labelling for the decline from the June high:

Dollar 120 min:

The bearish count is that the June high was intermediate wave (1) up, and the August low was intermediate wave (2). The rally since is the start of intermediate wave (3) up,

However, note the bearish alternative, which is one of the bearish possibilities outlined on the dollar page.

I've relabelled the 60 min chart to reflect the move since Monday. The bullish count therefore, is that a wave (ii) correction of the rally from the August low at 80.085 is continuing:

Dollar 60 min:

The retracement in wave (ii) has now reached the 70.7% level. You can see on this chart and on the 120 min chart above, that the decline looks like 3 waves. If it did bottom at 80.997, then wave y is about a 1.236 extension of wave w. The move off the low at 80.997, which I've tentatively labelled as wave (ii), is starting to look impulsive. 

However, there remains the risk that the decline from 82.987 is 5 waves and would be only wave [A] of y and we would now be in wave [B] before a further decline in wave [C], perhaps to the 78.6% retracement level.

This risk would only be ruled out if we take out the high at 82.987 in 5 waves. If it happens in only a 3 wave move, there's a risk that even if  the decline from that high is only 3 waves as labelled, all we're seeing is an expanded flat for wave y, where wave [B] takes out the start of wave [A] and then a decline in wave [C] follows just when it seems that the decline is over.

As I've said above, the move up from the 80.997 low is starting to look impulsive, but at present it counts best as 3 waves as labelled. If this labelling is correct, the next decline would be wave (4) so it would have to stay above the wave (1) high at 81.094 for this labelling to remain valid. Taking out that high on the next decline would be a good sign that further downside may be on the cards. It would certainly look best if this assumed wave (4) retraced only to the area of wave 4 of (3) at about 81.466 on this labelling. That's at about the 38.2% retracement level assuming a wave (3) high at 81.767 (I haven't labelled this yet). If we decline much below that in wave (4), I'd start to get suspicious of this move up as an impulse in the making.

If we get a wave (4) and (5) to complete 5 waves up from the low at 80.997, the next thing to watch for is a 3 wave decline that stays above that low. A move below that low will negate the assumption made for this labelling that wave (ii) bottomed there.

So, the three levels I'm watching for now are 81.446, 81.094 and 80.997.