Friday, 29 October 2010

21:10 BST - SPX End of Day Update

Once again we're left waiting to see whether the bullish or the bearish count is playing out, that is, whether we've seen a top to the rally from the August low or whether there's still more upside to come.

The charts below show a close up of recent action. For the bigger picture please see the 60 min counts page where the bearish count is shown on the charts of Options 1 and 2 and the bullish count is shown on the chart of Option 3. This is how I'm labelling them at the moment:

Bearish count:

SPX 1 min - bearish count:

This [1]-[2]-(1)-(2)-1-2 is what I'm sticking with for now. Wave 2 has a complex look about it, but essentially, I've labelled it as a  zig zag for wave w and a triangle for wave y with  and expanded flat type correction for wave x dividing them. On this basis it would likely be complete today. 

However, it may be that wave x should be at the 1179.70 low and wave y is a second zig zag with possibly more upside to come.

If there is more upside to come in wave 2, the invalidation point for this labelling remains 1189.53 on the main labelling so that shouldn't be exceeded.

If we take out the 1189.53 high that invalidates the main count. It would still leave the possibility of a [1]-[2]-(1)-(2) intact, but that would be invalidated above 1191.44. This wouldn't be my favoured alternate count.

If we do take out 1189.53, my favoured alternate count is the one I've referred to in previous days, but which I've now shown as the alternate count on this chart for ease of reference. For this alternate count, the high of 1196.14 would be the invalidation point.

Bullish count:

SPX 1 min - bullish count:

On this count, I've continued to label it as I did yesterday,  as if we're in wave [E] of the triangle, but as mentioned then, we could still be in wave [D], in which case, I'd expect the high at 1189.53 to be taken out before we drop again in wave [E].

On this count, the high at 1196.14 shouldn't be exceeded until we complete wave [E] and wave [E] must stay above the low of wave [C] - that's at 1171.70 on this labelling.

If the 1171.70 low is taken out, I'd have to consider it likely that we'll see more downside in wave iv, possibly down to the 38.2% retracement level at about 1152.

So, with today's sideways action, nothing has really changed since yesterday.

On the counts as I've labelled them, the levels I'm watching are 1189.53 and 1196.14 on the bear count (above these levels I'd consider the risk of more upside to be high) and 1171.70 on the bullish count (below which I'd think the risk of more downside increases).

Have a great weekend!

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

Markets still poised to go either way:

Bear count:
SPX 1 min - bearish count:

Staying below 1189.53 is crucial on this labelling, but with the other bear count mentioned in previous updates, 1196.14 remains the ultimate invalidation point for the bear count.

SPX 1 min - bullish count:
If we take out 1189.53, that could be wave [D] of the triangle so its not necessarily bullish because we'd then expect a drop in wave [E].

If we drop from here without taking out 1189.53, I'd assume its wave [E] but we have to stay above 1171.70 for that to remain valid.

11:11 BST - Dax Update

The triangle I saw in the Dax last time I posted (see here) wasn't complete, contrary to what I had previously labelled. It appears that it extended further, assuming that it is a triangle, as shown on the daily chart below:

Dax Daily:

As you can see, the possibility of more upside was what  transpired following the completion of this larger triangle. Out of that triangle we now have what looks like 5 waves up. Here it is on a close up of the daily chart from the April 2010 high:

Dax Daily chart close up from April high:

I've tentatively labelled the 5 waves out of the triangle as wave C of (Y) of [2] on the bear count. Its a 0.618 extension of wave A of (Y) and also, wave (Y) is 0.618 x wave (W). 

On the bullish count, however, this 5 waves out of the triangle could just be the end of minor A of wave (Z) up.

Here's a closer look on a 15 min chart showing the recent high and the bear count labelling:

Dax 15 min:

I've labelled an expanding leading diagonal down from the high. Its supposedly a rare pattern, but that's what it looks like to me. Also, the retracement of it, which I've labelled as wave [ii]  pretty much reached exactly the 78.6% level.

However, with markets having been so bullish of late, the benefit of the doubt has to be given to the upside. The diagonal I've labelled could just as easily be a triple zig zag correction prior to another advance (on either the bearish or the bullish count) or could be wave [a] of minor B within wave (Z) on the bullish count.

If we've seen a top on the bearish count, then I want to see this next decline move down impulsively to well below the low of wave [i] down at 6553.25. I'd then want to see the retracement that follows stay below that low so it can be counted as wave [iv], and then a further impulse down to complete wave [v]. 

That sort of decline would increase confidence in the bear count. However, until we take out the low at 6115.87, any decline could just be wave B within wave (Z) up on the bullish count. That assumes that on the bullish count I have wave (X) in the right place at that low.

So, its possible that we've seen a top on the bear count.  I think at this stage that we need to stay below the high labelled wave [ii] at 6644.61 and take out the low at 6553.25.  That would be a start on the bear count. However, I think that as long as we're above 6115.87, on my labelling, the possibility of further upside can't be ignored.