Friday, 17 September 2010

21:25 BST - SPX End of Day Update

With the high above 1129.24 today, the [i]-[ii]-i-ii count was finally invalidated. That leaves the following counts from the 60 min counts page intact:

1) the [i]-[ii] and 1-2 counts on the potentially very bearish side - currently Options 2 and 3 on the 60 min counts page

As mentioned over the last few weeks, in respect of the [i]-[ii] count (currently Option 2 on the 60 min counts page), where wave [i] was on 25 May, I was starting to dislike the count because of the time taken for wave [ii] (now that the [i]-[ii]-i-ii is off the table). On that basis alone, I'm going to drop that count in favour of the 1-2 shown currently as Option 3 on the 60 min counts page.

Here's the updated 60 min chart for that count:

You can see I've labelled a complete wave 2 at today's high, though noted that the rally from the August low could just be (i) of [c] of 2. We'll just have to wait and see how we decline, assuming we've completed 5 waves up (or an ending diagonal) from the August low.

Going forward, I'll be referring to this potentially very bearish count as Option 1.

2) a W-X down from the 1219.80 high, which has a Y wave down to come on the moderately bearish side (currently Option 5 on the 60 min counts page).

Here's the updated 60 min chart for this count:

You can see that here, I've adopted the alternate labelling  shown on the chart on the 60 min counts page, that makes the latest high (assuming we've topped) wave X  in the decline from 1219.80. 

I've also related the labelling to long term count 5 (see the long term counts page), which would make the move down from 1219.80 intermediate wave (2). You can see the count for intermediate wave (1) up from the March low on the "Impulse from March 2009" page. The chart on that page shows a target area for wave (2) around the 875-950 level.

Going forward, I'l be referring to this moderately bearish count as Option 2.

Since the count currently referred to as Option 4 on the 60 min counts page has pretty much the same effect as this one, but looks less attractive in my view, I'll be leaving that aside from now and just using this one.

3) for the bullish side, a complete (X) wave low in July followed by a leading diagonal wave A (or [i] of A) up followed by wave B (or [ii] of A) and, from the August low, the start of wave C (or wave [iii] of A) (see charts 2 and 3 in the update on the bullish counts posted on 9 August).

Here's the updated 60 min chart:

For this count, from the 9 August update on the bullish counts, I've used only the count shown on chart 3 since I much prefer that to the count shown on chart 2 in that update, so I'll leave that to one side from now. 
You can see that the labelling used relates to long term count 2 on the long term counts page (which has us in primary wave [2] up from the March 2009 low). So, the (Y) and (X) waves labelled would be part of an on-going primary wave [2] up which can't exceed the October 2007 high.

However, as noted on the chart, the count can also be applied to the more bullish long term counts, such as long term count 3 where these waves would be part of (D) of an expanding triangle that must exceed the October 2007 high.

Going forward, I'll be referring to this bullish count as Option 3.

Now, the question is whether or not we've topped in wave 2 (or [i] of (c) of 2) under Option 1 above,  or in wave X under Option 2 above or in wave [i] of C (or (i) of [iii] of A) under option 3 above.

Well, we need either a 5 wave impulse or a diagonal (ending diagonal for Options 1 and 2 above, or leading for Option 3) up from the August low.  Either can be counted in the move up from August and both can potentially be counted as complete at today's high.

Here's the diagonal shown on the bearish count under Option 1 above:

SPX 1 min - diagonal up from August low:

I've labelled it as complete at today's high, but without a significant decline following the assumed end of a diagonal, it gives rise to suspicion that it may not yet be done. I can see that we may have one more up leg to come as shown on this chart:

SPX 1 min - diagonal close up:

I've labelled the count for another leg up as an alternate on the above chart. It shows today's high as wave [A] of y and the move from there as wave [B], potentially a triangle shown by the blue dotted lines.

If we take out 1118.88 to the downside, then that would rule out this alternate since wave y must be a zig zag and so wave [B] can't move below the low of wave [A].

While we are above that level, the risk of further upside is high in my view. That further upside would be limited to 1150.84, assuming the labels are all in the right place, since above that, wave (v) would be longer than wave (iii), which would break the rules. If we were to move above there then we'd most likely be counting the rally as a 5 wave move up from the August low.

Here's the 5 wave impulse up from the August low. Again, I've shown it on the count for Option 1 above (though on this chart I've labelled it as if we will only have completed wave (i) of [c] today rather than the whole of [c]):

SPX 1 min - 5 waves up from August low:

I've labelled the 5 waves complete at today's high, with the decline from there being the start of a potentially significant move down. However, even here, there is scope for more upside if today's high was only wave (1) of [5]. However, with wave v on this labelling falling just short of a 1.236 extension of wave i, and wave iii having been a 2.618 extension, it may seem less probable that wave [5] of v is going to extend.

Additionally, while I can label the initial decline to 1122.43 as a zig zag for wave (2) of [5],  its difficult to label the rest of the move as the start of an impulse up in wave (3) of [5]. So, we'd have to still be in wave (2) of [5] down. That's possible, but we have to stay above the low at 1118.88 on the labelling that I have for this move. If we take out that low, then the labelling suggests we will have completed 5 waves up from the August low at today's high. However, it would be more certain if we take out the low from which wave v started, at 1101.53.

Here's a close up of the count which assumes we have seen a top today:

SPX 1 min - 5 waves up from August low close up:

So, this is what I'm watching:

1) If we topped today, we obviously have to stay below 1131.47;

2) confidence that a top of some sort is in at today's high would be increased if we could see some decisive follow through to the downside. Until then, the risk of further upside or sideways action remains;

3) an impulsive move below 1118.88 would begin to increase confidence that a top is in. However, I would also then be looking for a quick move below 1110.53 (the low I have labelled as the start of wave v) as further evidence of a top;

4) what the nature of that top is will have to be assessed as price action develops since both the bullish and bearish counts call for a decline once a top for the rally from August is in. For the bullish count in Option 3 above we need to stay above 1039.70, but the low at 1010.91 is the critical level for that count. For the bearish and moderately bearish counts, we need to see a swift decline below 1010.91, but taking out 1039.70 would be a good start.

Have a great weekend!

18:08 BST - SPX Update on the ending diagonal - risk of further upside here too

If I apply the ending diagonal count to to the move up from 1039.70, again, until we take out 1118.88, there seems to be some risk of further upside if today's high was only wave [A] of y, with the move from today's high being wave [B] (perhaps in the form of a triangle as shown by the dotted line in the following chart):

SPX 1 min - ending diagonal complete or further leg up required:

Since I have wave (iii) of the diagonal starting at 1091.15 and ending at 1127.36, if wave (v) isn't yet over, its upside is limited by the length of wave (iii) - it has to be shorter. I have wave (v) starting at 1114.63, so that gives a maximum level for wave (v) at 1150.84.

So, as with the count for 5 waves up from 1039.70, until we start to see follow through to these downward moves (which takes out meaningful levels), the risk remains to the upside.

17:51 BST - SPX Update: (1)-(2)-1-2 - if so, it had better get moving down

This really needs to get going to the downside if we have seen a top at 1131.47, otherwise, the risk, as in previous days, is that without the downside follow through, further upside remains and perhaps today's high was only wave (1) of [5], not the whole of [5]. For the moment, I'm labelling a (1)-(2)-1-2 from the high:

SPX 1 min - close up:

Still looking for it to take out that 1118.88 level.

16:36 BST _ SPX Update - (1)-(2) down following a top?

We  had what looks like 5 down from today's high and what looks like 3 up into the 61.8% retracement level from today's high to today's low - could be a (1)-(2) down:

SPX 1 min - close up:

However, we need to take out 1118.88 to improve the odds of the bear case and a top at today's high, assuming wave [4] is in the right place.

14:57 BST - SPX Update - top in?

Referring to chart 4 in yesterday's end of day update, if I place wave [4] of v at the low at 1118.88, I can count 5 waves up at today's high:

SPX 1 min - close up:

Taking out 1118.88 would given reason to have some confidence int his count.

14:04 BST Dollar Update

The dollar failed to make 5 waves up following my last post (which you can read here) and continued its decline which, on the bullish count, is wave (ii) within an intermediate wave (3) up. 

I mentioned in that last post the risk that the low I had labelled as wave (ii) could be only wave [A] of y of (ii), which would mean that following a rally for [B], there would be a further decline in wave [C] to nearer the 78.6% retracement level of wave (i). Well we got the further decline and it did just about reach the 78.6% retracement level at today's low of 80.865. 

Here's how I'm labelling it for the bullish count:

Dollar 60 min:

We've now rallied from that low in what looks more like an impulse than the rally we were seeing at the time of my last post. However, that's no guarantee of a bottom since if the bearish counts are playing out, such a rally could simply be part of a corrective move.

So, what we need to see is a 3 wave pullback once this move up completes. (assuming it does so in 5 clear waves). The pullback must stay above the low at 80.865, otherwise the labelling is wrong.

Assuming that happens, we then need to see an even more decisive push up in 5 waves followed by a 3 wave pullback that stays above the high of the first rally leg and then another 5 wave rally. In other words, of course, we need to see a 5-3-5-3-5 larger degree rally. It would be preferable if we could take out the high at 82.987 in this rally, but really we can only take things one step at a time and monitor each rally for 5 waves and each pullback for 3 waves.

So, I'd be looking at a 3 wave move down that stays above 80.865 and a good reversal signal as a sign of another leg up to come, but I'd want to be out if we then drop below either the low of the pullback, or the low at 80.865. Given that continuing downside in wave (ii), or in one of the more bearish counts (see the dollar page) remains possible, its no time to assume that an impulsive looking rally means a bottom has been put in.

13:59 BST - SPX Time Symmetry Suggesting a Potential turn?

Some time symmetry in calendar days and traded days might be suggesting a top today:

SPX Daily:

In calendar days and traded days from the lowest low (and lowest close) in July to the highest high in August and from that high to the lowest low in August, there's a cluster of days within this time symmetry period. With the larger, March 2000 cycle that I showed on Wednesday (see this post)  coming in next week, we would seem to be in a zone where there ought to be a good chance of a market turn.

Obviously, as I made clear in that post, we have to see price action that confirms this - something we haven't yet seen.

Still, it'll be interesting to see how or if this plays out.