21:13 BST - SPX End of day Update

You can see the bigger picture for each of the following counts on the charts of Options 1, 2 and 3, respectively on the 60 min counts page.

Bearish count:

Chart 1: SPX 1 min - bearish count:

 

This assumes a top to the rally from the August low at the high of 1189.43.

With the sidways action today, its unclear whether wave (2) has ended, as labelled, or whether its still in progress, with another up leg to come. 

Taking out 1183.93 will invalidate the little i-ii that I've labelled. Given the sideways action today, I think its probably more likely that we'll see more upside in wave (2), but until that high at 1183.93 is taken out, I'll leave the labelling as it is.

If there is more upside, it has to stay below 1189.43 for the count to remain valid.

If that high is taken out, I'll be looking to the following count as likely playing out.

Moderately bullish ending diagonal count:

Chart 2: SPX 1 min - ending diagonal:

This count puts us in an ending diagonal wave v in the rally from the August low.

As mentioned in the update posted last night, if we're in wave [5] of this diagonal, it has to stay below 1200.89 to remain valid and it has to take out the high labelled wave [3] at 1189.43.

If we exceed 1200.89, it could either mean that we're only in wave [3] of the diagonal or that the more bullish count below is playing out.

If we're still in wave [3] of the diagonal to a new high for the rally from the August low, then once its complete, wave [4] will have to stay above the dotted blue line for the diagonal to remain valid.

If we take out the low at 1171.17 before making a new high at this stage, I'd start to question the diagonal. However, it won't be ruled out until we take out 1159.71 or the dotted blue line.

Bullish Count:

Chart 3: SPX 1min - bullish count:

This has us in a subdividing wave (v) in the rally from the August low.

Its not clear whether wave 2 of (3) is complete today or if it has more downside to go before we see more upside. More downside would make sense given that wave 2 is, so far, a very shallow retracement. If there is more downside to come, it needs to stay above 1171.17 for the labelled count to remain valid. 

If we take out that low without new highs, we may still be in wave (2), so the overall count will remain valid. However, we'd then have to stay above 1159.71 in wave (2) to keep that count alive.

At the moment, I'm tending to prefer the bearish count given the technical picture outlined in my earlier post. However, if we take out the high at 1189.43 and invalidate that count, then my preferred count will be the ending diagonal, again, given the current technical picture and also because its probably more likely to result in a wave v that is more in proportion to wave i in the rally from the August low than the bullish count shown in Chart 3.

So, for the moment, the levels I'm watching are 1189.43 (to keep the bearish count on the table), 1171.17 (taking this out might be a warning that the ending diagonal or the bullish counts may not be playing out, but won't invalidate them) and 1159.71 (taking this out will rule out the ending diagonal labelled and the bullish count). I'm also watching the dotted blue line on Chart 2 above, since a drop below that will rule out the diagonal count shown.

Have a great weekend!

19:29 BST - SPX Update on the bearish, moderately bullish and bullish counts

Quick update on the counts:

Bearish:

SPX 1 min - bearish count:

Its not clear if wave (2) is complete. There's room for it to go higher. 1185 is about the 78.6% retracement level.

The sideways action today suggests a corrective move, but whether it precedes another leg higher to complete wave (2) or the next leg lower remains to be seen.

Moderately bullish ending diagonal:

SPX 1 min - ending diagonal:

Here, wave (B) of [5] of the diagonal may have more to go to the downside, but can be counted as complete now.

Bullish:

SPX 1 min - bullish count:

As with the ending diagonal count, wave 2 may be complete now or may have more downside to go. If there's more downside, it has to stay above 1171.17 on this count.

14:39 BST - SPX Update - Still possible we topped at 1189.43

With the move above 1181.90, the close up count of the move from 1189.43 to yesterday's low  shown in Chart 2 of yesterday's end of day update has been invalidated. However, there remains a bearish count that may be worth keeping in mind. Here it is in close up, showing 5 waves down from the high at 1189.43 rather than the (1)-(2)-1-2 count that was previously labelled:

SPX 1 min - bear count close up:

This count has a rather out-sized wave 4 of (1), compared to wave 2 of (1). However, that doesn't invalidate the count, so I'll keep it on the table as the bear count until it gets invalidated by a move above 1189.43, when the more bullish counts shown in yesterday's end of day and subsequent update will come into focus.

8:39 BST - SPX Update: Conditions are in place for a top - price action has yet to confirm

Technical signs suggest that the market ought to be at or near a top. Here's the daily chart:

SPX Daily:

As you can see, the rally from the August low has been crawling up the median line of the pink pitchfork and, of course, it can continue to do so. 

The technical indicators should be a concern on the bullish side, however:

- the CCI seems to be stuck under +100;

- the MACD histogram has been showing significant bearish divergence;

- the RSI failed to make a new high with the market yesterday;

- the MACD is rolling over;

- the stochastic has turned down.

CBOE Equity Options Put/Call Ratio:

I last posted this and the following two charts on 9 October.

The 5ma has moved above the 10ma and the 10ma is itself moving up. However, both remain contained in the pink downward channel (bullish for the market).

As I've said before, technically, the action of the moving averages is a sell signal, but while they are below the blue dotted line, the risk of false signals is high.

A decisive break above the blue ine and out of the pink channel is needed. 

For the moment, this suggests a sell, but with caution.

The McClellan Oscillator broke the bear flag I had drawn in and failed to break above the red channel, which seems rather bearish along with the negative divergence it has displayed as against the rally in the market.

SPX Percent of Stocks Above the 50ma:

This triggered a sell signal with a break below its 13ma on 19 October.

NYSE $Tick:

The NYSE Tick continues to display bearish divergence against the market, suggesting some real underlying weakness.

However, until we actually see some price action to confirm that a top to the rally from the August low may be in, price can continue to creep up, as we've seen.

I've bored myself silly repeating numerous times over the last few weeks that the price action required is a clear impulsive 5 wave decline that breaks some significant price level. In elliott wave terms, this means three 5 wave declines linked by two 3 wave rallies with no overlap.

So far, on various occasions, we've seen an initial 5 wave move down that looks promising as the start of a larger 5 wave decline, followed by a 3 wave rally and then a second 5 wave move down. However, they've subsequently turned out to be part of a larger 3 wave decline when the second 3 wave rally has overlapped the low of the first 5 wave decline. This is what we saw yesterday, with the late rally turning the move down into yesterday's low into a 3 wave move. The best play in recent days has been to go long when you see a possible end to the second 5 wave move down.

It remains possible that the bearish count shown in Chart 2 of yesterday's end of day update will play out. Certainly, with the invalidation point so close by, it could be worth a short trade. However, if you want to play it safe, the benefit of the doubt has to be given to the upside in these circumstances and you have to wait for clearer price confirmation of a potential top.