Wednesday, 13 October 2010

21:20 BST - SPX End of Day Update

We got the new highs for the rally from the August low as envisaged by the counts shown in yesterday's end of day update. The main bearish count remains the diagonal from the August low. Here it is on the 60 min chart:

Chart 1: SPX 60 min - diagonal from August low:

This would be an ending or leading diagonal, depending on which of the bigger picture options is in play (as to which, see the 60 min counts page - the chart above assumes its Option 3).

Here's a close up of Chart 1 from the wave (ii) low (its labelled as if Option 1 is playing out):

Chart 2: SPX 1 min - close up of diagonal from August low:

As mentioned yesterday, the limit for wave (v) is 1192.52 because wave (v) must be shorter than wave (iii). We managed to stay below that level so the diagonal is still a valid possibility.

On this labelling, taking out 1155.71 would suggest that the diagonal is complete, but an earlier indication might be taking out the b wave low at 1162.55. However, an impulsive move that takes out the wave [4] of c low at 1173.14 would make me start to consider that a top might be in.

I've labelled the decline from today's high as the start of an impulse wave down, but we have to see alot more price action before we can have any confidence in this. The first test would be staying below the high I've labelled as wave (2) at 1182.47. If we take that out before making a clear 5 waves down, I'd start to think that the high at 1184.38 may only have been wave [3] of c, not wave [5].

Here's the more bullish count which has us in a subdividing wave v of (v) in an impulse wave up from the August low. This chart is labelled as if Option 3 is playing out:

Chart 3: SPX 1 min - impulse up from the August low:

Taking out 1168.68 in what I'm assuming is now wave [4] of v  would invalidate the labelling and would start to suggest that the diagonal in Charts 1 and 2 above is playing out. However, I'd feel more confident of this if we were to take out the 1155.71 level mentioned under Chart 2 above and then 1151.41.

In addition to the two counts above, there's still  the much more bullish possibility I have been mentioning over the last several days, that the high at 1163.87 was wave i of (v) and the low at 1151.41 is wave ii, which puts us now in wave iii of (v). We'd really have to take out 1131.87 to eliminate this, but taking out 1168.68 at this stage would probably render this count less likely.

So, the levels I'm watching are 1182.47, 1173.14, 1168.68, 1162.55, 1155.71 and 1151.41. The four that I've underlined are, in my view, the most important levels to watch on the counts that I've labelled.

19:32 BST - SPX Update

The market keeps grinding higher, as you'd expect when no significant level to the downside is taken out. Here's what I'm seeing at the moment. first for the bearish count:

SPX 1 min - ending diagonal from August low:

I've labelled it as complete, but there's no price action yet to support this. I'd like to see 5 clear waves down to start with and then a drop below that wave (4) low at 1173.14

Here's the bullish count:

SPX 1 min - impulse up from August low:

Here, if the labels are correct, we have to stay above 1168.68 in wave [4]. If we drop below that, I'll start to prefer the ending diagonal count above.

15:32 BST - SPX Update on the bullish and bearish counts

Here's the second chart from yesterday's end of day update:

SPX 1 min - ending diagional from August low:

Bottom line: if this labelling is correct, we have to take out 1155.71, though taking out that low labelled b at 1162.55, as mentioned yesterday, would help.

Here's the bullish count from the third chart in yesterday's end of day update:

SPX 1 min - impulse from August low:

If this is playing out, we have to stay above the wave (1) of [3] high at 1165.06 in wave (4).

So, essentially, while we're above 1165.06, I'd favour the upside. If we take that out now, I'd start to think a top for the rally from the August low may be in, but I'd want to see  1162.55 and then 1155.71 get taken out very quickly and impulsively.