Thursday, 30 September 2010

21:17 BST - SPX End of Day Update

On the 3 Options set out on the 60 min counts page, I'm  looking for the end of 5 waves up from the August low  to mark the end of minor 2 (or (i) of [c] of 2) on Option 1, the end of wave X on Option 2 or the end of wave [i] of C (or (i) of [iii] of A) on Option 3.

Please refer to the 60 counts page for context.

It may be that we have a good candidate for a top at today's new high for the rally from the August low at 1157.16. This is based on the ending diagonal I've been showing.

Here it is on the bigger picture for the move up from the August low (labelled as if Option 1 is playing out):

Chart 1: SPX 1 min - 5 waves up from the August low:

Here's a closer look: 

Chart 2: SPX 1 min - 5 waves up from the August low close up:

We had what may reasonably be counted as a 5 wave decline from the high at 1157.16 and the move up from there appears to be 3 waves.

If this is correct, I want to now see an impulsive move down that takes out the low at 1132.09 and the low at 1122.79. As explained in my earlier post, taking out the first level will preclude a further high to come in wave v of the diagonal that I've labelled on the above charts. Taking out the second level will start to make the bullish case look doubtful (though it won't be invalidated).

Its possible that wave [2] still has further upside - so far we've retraced about 50% of the decline from the high. The move down from where I've labelled wave [2] doesn't look impulsive at the moment, so we could still be in the (B) wave.  If so, it may well try to get to the 61.8% level at about 1149 before its done. A 5 wave decline below 1136.08 will mean that wave[2] should be over. 

To the upside, we obviously need to stay below the high at 1157.16.

Turning to the more bullish counts, here's the bigger picture (the labelling on these charts relate to Option 3): 

Chart 3: SPX 1 min - 5 waves up from August still in progress:

This is beginning to look unlikely as far as starting wave (v) up is concerned. However it can't really be ruled out. If we take out 1132.09, that will eliminate the i-ii-[1]-[2] and the possibility that wave (iv) ended at 1132.09, but still leaves the possibility that we're in a i-ii from the 1122.79 low.  If we take out 1122.79, that will eliminate the i-ii count for the start of wave (v) up, but won't rule out the possibility that we're still in wave (iv). I have the high of wave (i) on this count at 1065.21, and that's what will rule out a continuing wave (iv) as far as elliott wave is concerned.

Here's a close up:

Chart 4: SPX 1 min - 5 waves up still in progress, close up:

You can see even more clearly at this scale why I think this count, showing the start of wave (v) up at 1122.79, seems unlikely, with all the ones and twos in there. 

You can also see that if we take out 1136.08,  the blue (1)-(2) will be eliminated. Then, as mentioned above, the next levels to watch are 1132.09 and 1122.79.

The possible diagonal I've sketched in suggests a top has been put in  at 1157.16 even on this count. Still, I want to see the levels mentioned above taken out to gain greater confidence in this.

So, the levels I'm watching for some sort of confirmation of an end to the rally from the August low at 1157.16 are 1136.08, 1132.09, 1122.79. To the upside,we have to stay below the current high at 1157.16.

17:08 BST - SPX update on the ending diagonal

This is the chart from earlier, updated with the subsequent price action:

SPX 1 min - ending diagonal complete at 1157.16?

Taking out 1141.02 has confirmed that a diagonal with the alternate labelling as shown on the chart in the previous post is complete at today's high.

However, if its the diagonal shown above (this was the main labelling on the chart in the previous post) that is playing out, we have to take out the low at 1132.09 to preclude further upside in wave v.

I've tentatively labelled an impulse wave down from today's high, but wave (1) looks more like a double zig zag - I've labelled a running flat wave 2 within wave (1) to make it an impulse, so its not entirely satisfactory.

What I want to see now is the low at 1132.09 get taken out. If we take that out, the diagonal shown in the above chart would, I think, have to be complete since wave v, which could still be in progress otherwise, would no longer be a zig zag type wave if that low is taken out.

Until 1132.09 goes, the above diagonal carries the risk of further upside (to a maximum of 1159.22).


16:26 BST - Dollar Update

On the overall bullish count which has us currently in a wave (2) decline in the dollar, we've just about reached the 78.6% retracement of the decline from the June high and the point where wave C is .618 x wave A:

Dollar 80 min from June 2010 high:

Coupled with the above, there's a not unreasonable count for a complete 5 waves down from the high labelled B. Here's a closer look:

Dollar 60 min from B wave high at 83.522:

However, remember, the trend is firmly down. Until we see something clearly impulsive to the upside, the risk of further declines remains - we may have more to go in wave (v) of [v] of C or, perhaps we may only have seen the first wave of wave [v] within C, for example. The latter isn't ruled out until we take out the wave [iv] high at 80.259.

So, the low at 78.414 is critical to this labelling showing wave C of (2) as complete and the labelling has to be tentative until we see some price action that is decidely bullish (don't forget, there are more bearish potential counts - see the dollar page).


15:08 BST - SPX Update onthe ending diagonal

So, 1150 wasn't the top of the rally from the August low. However, on the ending diagonal count, one of the alternatives was that we were still in wave v (see yesterday's end of day update). If that's the case, we may have seen it complete today - its invalidation point was 1159.22:

SPX 1 min - ending diagonal close up:

If the alternate is playing out, with wave iv at 1141.02, then the invalidation point is at 1168.23. Needless to say (but I will), until we see a decisively impulsive decline, the risk remains to the upside as always. If we take out 1141.02 without making a new high, I might have more confidence in this labelling.

10:28 BST - SPX - 60 min time and price chart

I've continued to watch this 60 min time and price chart with interest:

SPX 60 min time and price chart:

When I posted it on Tuesday (see here) I noted how price had crawled up the mid line of the channel after the big gap up on Friday, fallen away from it and then tried to get back to it but failed, suggesting some weakness.

You can see that following this, we saw price drop out of the channel, but it then did what I didn't want to see it do if we had seen a top to the rally from the August low - it got back into the channel and we duly made a new high.

However, its interesting that we didn't get near the mid line of the channel with this new high at 1150 and after making that high, we fell back out of the channel and then spent most of yesterday crawling up the lower line of the channel, trying to get back within it. The failure to do so continues to suggest weakness and, as you can see, we continue to see the indicators seemingly confirming this weakness.

Also of interest is the striking similarity between the current move and the move into the early August high - I've highlighted the two areas in yellow. The current move seems to be a smaller version of the August top. Well, this is interesting but probably has no predictive value. Just thought I'd point it out.

Still, the current move, is displaying the same indicator divergences that we saw into the August top, so may be indicative of a topping process going on.

None of this precludes further highs, so we just have to continue to watch price action and look for confirmation in the indicators. I explained in the previous post what I would want to see in price and indicator action to provide a degree of confidence that some sort of top has been put in. Although we closed below the channel yesterday, I don't think it can yet be considered as a significant breach. We need now to see downside follow through if a top has been put in.

However, if price gets back into the channel, then its going to be a warning that we may see further highs before this rally is over. It could be limited if price again fails to make it to the mid line of the channel, so it would be sensible to monitor any move back into the channel to try to gauge the strength of the move. 

As I pointed out prior to Friday's move, price could move up into the next Gann price levels (1156 then 1170) by just crawling up the mid ine (or, indeed, the lower line) of the channel. If that's what it does, again, I'd be looking at that as a sign of weakness.

Of course, if it gets back into the channel and then gets above the mid line, then all short bets should be off.