Wednesday, 22 September 2010

21:19 BST - SPX End of Day Update

On the 3 bullish to bearish Options set out in Friday's end of day update, the question remains whether or not we've seen the completion of 5 waves or a diagonal up from the August low at yesterday's high of 1148.59  (the diagonal would be an ending or leading diagonal, depending on which of the Options you're looking at). 

Please refer to the 60 min charts in Friday's end of day update for context (the following charts are based on the bearish count shown in Option 1 in that update).

I'll show the possible counts on the chart of the 5 wave impulse from the August low, but if the ending diagonal is complete, the count for the move down from 1148.59 shown in chart 1 below will apply to that also. These are close up charts - for a wider view, please see the charts in yesterday's end of day update:

Chart 1: SPX 1 min - top is in at 1148.59 - impulse/correction down has started:

The labelling relates to the bearish count shown in Option 1 in last Friday's end of day update. Although I've labelled it as if we've only completed wave (i) of [c], given how far we've come, I'm more inclined to think that the rally since August is the whole of [c], so the end of minor wave 2.

This count assumes that the rally from the August low has topped and that we are now going to see at least a reasonable decline. 

On the bearish counts (Options 1 and 2 in last Friday's end of day update) this move down wave would be the early stages of wave [1] down. We should eventually be headed down below the August low (on Option 1 I'm assuming that the high at 1148.59 is the end of wave [c], not just part of it, as mentioned above).

On the bullish count (Option 3 in that update) this move down would be wave (a) or (w) of [ii] down and we're only going to retrace a portion of the rally. Wave (a) may take the form of 5 waves, or it may just form 3 waves. Wave (w) would be 3 waves. Since we have 3 waves down from 1148.59 to 1131.58, its possible that that low marks the end of wave (a) or (w) of [ii]. If its (a), then wave (b) will have to retrace at least 90% of the decline since 3 waves for (a) means a flat is forming. If its (w), then the move up from 1131.58 would be wave (x) and can take any corrective form and doesn't have to retrace any particular amount.

For the bearish count, or if we're forming 5 waves for (a) of [ii] on the bullish count, the labelling on chart 1 will have to be revised if we take out the high at 1144.38 in this assumed wave 2 of (3) retracement (and, of course, it'll be invalidated altogether above 1148.59). Although I've labelled wave 2 of (3) as complete, it may not be since its quite shallow for a second wave, so further upside is possible as long as it stays below that wave (2) high.

However, once complete, if we're seeing an impulse wave down from 1148.59, then I want to see a swift move to below 1131.47 and then below the wave [4] low at 1119.77.

Chart 2: SPX 1 min - final leg of the rally still to come:

Here, I'm assuming that the high at 1148.59 was wave X in an expanded type correction for wave (4) of [5], so there is still one more high to come before the rally from the August low is complete. 

This count will be invalidated if we take out the high of wave (1) of [5] at 1131.47 without making 5 waves up from wave (4) and/or a new high first.

So, after today's action, the levels I'm watching are 1148.59, 1144.38, 1131.47, then 1119.77.

19:55 BST - SPX Update: on the immediately bearish count, impulse down from 1148.59 in progress

Referring to the two bearish counts in my last post, I don't like the fact that we took out the low of the diagonals in what's meant to be wave (2) or 2. It doesn't break any rules, but I'm thinking this may be the better count for the move from the high at 1148.59 (the chart is slightly different from the charts I've been showing for the 5 waves up from the August low - its from Friday's end of day update and on this one, wave [4] isn't a triangle, but otherwise, its no different from the previous chart):

SPX 1 min - impulse down from 1148.59 in progress:

At the high of 1137.23, c=a so if this count is right, it could be done now. This count will be invalidated if we take out the high at 1144.38.

17:24 BST - SPX Update: Possibilities from the 1148.59 high

For the immediately bearish case, the move down from 1148.59 can be counted as a leading diagonal wave (1). However, it could be a C wave within wave (4) on the alternate (the wave (4) of [5] possibility just managed to survive this morning's decline). 

There's another possibility, which is that waves (1) and (2) are where I placed them in my first post and there was then a diagonal for 1 of (3) to today's low (see the dotted lines). That's negated above 1144.38:

SPX 1 min - top in at 1148.59 or one more high to come:

Levels I'm watching: 1144.38 to negate the (1)-(2)-1 count;1148.59 to negate the wave (1) down count; and 1131.47 to negate the wave (4) of [5] count.

15:13 BST - SPX Update: possible (1)-(2) down from 1148.59

With the rally from yesterday's late low looking like 3 waves, here's a provisional labelling which assumes that yesterday's high was the top of the rally from August, but the alternate count remains a possibility until we take out 1131.47 without making a new high first (wave (4) may have formed or be forming a triangle (see blue dotted lines) - this will be eliminated if we drop below 1136.22):

SPX 1 min - possible (1)-(2) down from 1148.59:

12:26 BST - Dollar Update

The dollar failed to hold the low at 80.085 so confirming that wave (2) of intermediate [3] up on the bullish case, isn't yet over. The count that I've been showing as an alternate is now the main count and puts us currently in wave C of (2) on the bearish case:

Dollar 75 min:

You can see that I've labelled it as if we're only in [i] of C at the moment. That might be too pessimistic, but a better time to judge will be once we have 5 waves down from the B wave high complete. At the moment, the decline from wave B isn' t quite 0.5 x wave A. It would be at about 79.200. If it gets there, or, better still, to the 0.618 x wave A at about 78.191 in 5 waves, that would look quite good for the whole of wave C.

I've also noted the alternative on the chart, which I mentioned in yesterday's update which is that the decline from where I have labelled wave B is actually only wave [b] of B, (in the form of a double zig zag) so we'd next get a rally in wave [c] of b.

Here's a close up from the wave B high:

Dollar 60 min:

Once we've completed wave (iii) of [i] of C down (if its not yet complete), then we should get a rally of sorts in wave (iv), perhaps to the 38.2% retracement level at arounf 81.100. 

Anything much above that, especially if we break impulsively above the wave iv triangle and that area of congestion becomes support, would start to suggest that the alternative labelled may be playing out. The other alternative would be  that we completed wave C (the latter would involve some relabelling since currently the labelling assumes we haven't seen a complete impulse wave down from the B wave high - the best solution may then be to label the decline from (1) to A shown on the 75 min chart as 3 waves for wave W, followed by wave X and then 3 waves for wave Y).