Wednesday, 17 November 2010

21:11 GMT - SPX End of Day Update

After a big drop, we had the consolidation today.  This wasn't entirely unexpected given where we're at on the daily chart (see my earlier post here). The sideways to up nature of the move looks corrective at the moment, suggesting that the odds would favour further downside to come.

Please refer to the 60 min counts page for the bigger picture showing how the following charts fit into the counts that I'm following.

Here's a close up of the bearish count:

SPX 1 min - bearish count close up:

I think that odds favour that this correction isn't wave 4 of (1) - counting it as such doesn't break any rules, but it doesn't seem to look right. So, while its still a valid count, it would be my least preferred right now.

The two that I prefer are as labelled. The main labelling puts us in wave (2) of [3]. It would, ideally, retrace more than it has done so to date, to the area mentioned in yesterday's end of day update, 1190 to 1194. However, it would still be a perfectly valid 2nd wave if today's high marks its end.

The alternate labelling is equally as valid, making yesterday's low wave [3] and the move off yesterday's low wave [4]. Wave [3] is just over 1 point longer than wave [1]. Often, where the 1st and 3rd waves of an impulse are about equal, the 5th wave extends.

If we do just drop from here without getting up to the ideal level for a wave (2) retracement on the main count, I don't think we'll be able to tell immediately whether we're in wave (3) of [3] or in wave [5], especially if we get an extended decline. I think it may only become obvious once we complete such a decline and then retrace back up. Then if the low at 1173 gets taken out, we'll know that the decline couldn't have been wave (3) of [3] because the retracement that follows it would have to stay below 1173. If we decline from here, but the decline is weak, the chances will increase that its a 5th wave, not wave (3) of [3].

Here's a close up of the bullish count:

SPX 1 min - bullish count:

There are various ways that the decline from 1127.08 can be labelled. For the moment, I'm assuming a complete zig zag down to 1173. This could be all of wave [iv], but this wouldn't be my favourite count, so I've changed the main labelling to show this zig zag as only wave (w) of [iv].  This means that we're now in  a wave (x) up and will then see further downside in wave (y), towards the 38.2% retracement level that I mentioned in yesterday's end of day update, at about 1156. This could still apply even if we take out 1173, since wave (x) could just be forming an expanded type correction.

However, if we decline strongly from today's high in an impulsive manner below 1173, I'd be looking at the alternative labelling, that 1173 is only wave i of (c), so wave (c)  would then achieve the deeper retracement that I'd prefer for wave [iv] (remember also that the other interpretations of Option 3 on the 60 min counts page could entail a significantly deeper retracement).

For the moment, I'm watching the low at 1173. If that gets taken out, it opens up the door to more bearishness, especially if its taken out in 5 waves from today's high. However, taking it out in 3 waves from today's high would favour it being part of an on-going upward correction. 

If there's more upside to come, then, for the bearish count, we need to stay below 1207.43 for the main count to remain valid and 1194.08 for the alternate count to remain valid. Taking out 1207.43 may not be a guarantee of news highs for the rally from the August low occurring imminently since we could simply be seeing a wave (x) as part of a continuing downward correction of that rally in accordance with one of the bullish counts (see Chart 2 on the 60 min counts page for these).

16:07 GMT - SPX Update

At the moment, its unclear whether we've made a wave (1) low on the bearish count or whether we're still in wave 4 of (1):

SPX 1 min - bear count:

So far, we've got 3 waves up from the low that I've labelled as wave (1) of [3]. We've only retraced about 38.2% of wave (1) and if that remains the case, I'd be inclined to consider today's move up as part of wave 4 of (1) rather than as wave (2) of [3].

For the bullish count, its the same isse, whether we've bottomed in wave (c) of [iv] (or wave (w) of [iv]), or whether we still have a further low to come:

SPX 1 min - bullish count:

If we see 5 waves down from today's high, then I think that today's high is more likely to have been a 4th wave on these counts. If we see 3 waves down, even if it takes out 1173, we could well be seeing an expanded correction in progress for wave (2) of [3] on the bearish count or part of wave (x) on the alternate bullish count (which would mean that 1173 was a wave (w) not (c) on the bullish count).

While we're above yesterday's low, the chances are that we'll see more upside in wave (2) on the bear count and in at least a wave (x) on the bullish count.


14:41 GMT - SPX Update of the daily chart

The downside that the daily chart seemed to be suggesting at the end of last week (see my post at the weekend) has transpired. However, we're now at an area where there may be a bounce or at least a pause:

SPX Daily:

This is a close up of the daily chart posted at the weekend. You can see that we've reached the bottom of the area of support that I had highlighted and we're also in the vicinity of the lower line of the blue pitchfork and the 50ma.

These reference points would be a logical place for at least a pause in the decline. However, if things are really bearish, we could see price just slice through these areas just as it has sliced through and arrived at the bottom of all that congestion that should have been support.

Such a move wouldn't be too surprising since the indicators on the chart don't suggest that a significant bounce is likely as yet. Still, with these reference points so close by, its just as well to be prepared for a bounce from around the area of these reference points or at least some sideways consolidation before any further downside suggested by this chart can occur.