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.

13:19 GMT - SPX Weekly and Daily charts

As you can see from the 60 min counts page and the intra day updates, I can count the rally from the August low as complete at 1227.08 or that high can be counted as only the 3rd wave up from the August low, so after a pullback in a 4th wave, we'd see a new high above 1127.08 before the rally is complete.

Personally, I prefer the first interpretation. However, in terms of wave behaviour, as I said in yesterday's end of day update, although I can count an impulse wave complete or nearly complete at yesterday's low, that move down from 1227.08 could just as easily be counted as a double three, which favours more upside. Further, in terms of price, we haven't yet breached any levels that would weight the odds in favour of the bear case. Indeed, the price levels that would really start to favour the bear case are so far below us that unless we get a stunning collapse, it could be a while before we can really begin to think that the bearish case could be the one that's playing out.

As you can see from the 60 min counts page, there are a number of ways to interpret what an end to the rally from the August low might be.

If we've topped in wave X or B on Option 2, then we could well see a fast and furious decline very soon.

If Option 3 is playing out, then, in reality, until we take out the low at 1039.70, the three bullish (of varying degrees) interpretations of that Option will remain very much on the table, though the least bullish one would be eliminated if we were to take out 1129.24.

Still, there are reasons to think that we may be in for a decent pullback soon, if we haven't already started it.

SPX Weekly:

Looking at the weekly chart, Friday's close meant no follow through to what was a very bullish bar the previous week which closed pretty much at its high. Its rarely a good sign when a bar that closes at its high or low fails to follow through on the next bar.

As you can see, that failure occurred at the median line of the green and blue pitchforks and the week closed below both. However, the question is whether that's a terminal failure (at least near term) or whether we're just coming back down to test the 200 ma that was broken above on the prior week's bar.

Well, the weekly indicators may, in the main, be suggesting that more of a pullback could be on the cards. The CCI is still rising, but could just be double topping below the zero line. There's bearish divergence in the RSI and the MACD histogram printed a lower high bar after the prior week's bar had managed a higher high. The stochastic is also more consistent with a pullback coming than with more significant upside.

However, by the end of next week, I'd really want to see the CCI actually turn down from the zero line, the MACD also start to turn down and the stochastic break down below the 80 line, with the RSI continuing on a downward path and the MACD histogram printing another lower high bar. I'd want to see this with another negative close for the week that closes below this week's bar.

The daily chart seems to suggest that this is possible:

SPX Daily:

The green and blue forks are those shown on the weekly chart. You can see more clearly here how price has bled up along the median line of the blue fork. To me, that does make the failed break above it seem even more bearish.

The indicators would suggest that more downside should be seen into next week, with bearish divergences showing up against the April high and/or within the rally from the August low itself.

However, if we do see further declines next week, these indicators really do need to confirm, with the CCI heading down quickly to below zero, the RSI breaking below 50, the MACD descending down to, and preferably below, the zero line and the RSI breaking down below its 50 line.

I wouldn't want to see such moves in the indicators occurring while price only moves sideways. I'd consider that to be more bullish than bearish.

Essentially, what it comes down to is that the weekly bar now has to do what the prior weekly bar failed to do, namely, follow through. 

The problem is that, as you can see from the daily chart, we're right at an area of price support which coincides with the 20 ma (as well as the 200 ma on the weekly) - see the yellow highlighted area on the daily chart. It may take a gap down to break through that support and that would certainly begin to look pretty bearish. However, while we hold that support, the benefit of the doubt, logically, must be given to more upside, whatever the indicators on the weekly or daily charts might be suggesting.

 

11:45 BST - SPX: Indicators and Internals still suggesting conditions are in place for a pullback - confirmatory price action still awaited

These charts, updated from the last time I posted them on 22 October (click here to view that post) continue to suggest that care is required on the long side:

SPX Daily:

The comments made in that last post with regard to the indicators on this chart continue to apply as price remains stuck around the median line of the pink pitchfork.

CBOE Equity Options Put/Call Ratio:

The 5ma has moved decisively above the 10ma and the latter is trying to break above the pink downward (bullish for the market) channel.

The McClellan Oscillator failed to make a new high with the market once again, simply backtesting the broken green upward channel and the zero line. It still paints a bearish picture.

SPX Percent of Stocks Above the 50ma:

The sell signal triggered on 19 October remains in force, but we now have the 13ma now appearing to roll over, which should reinforce the signal.

NYSE Tick:

The bearish divergence on this chart continued as the market shot up to the 1196.14 high, so, still indicates internal weakness.

In light of all of the above, short trades do seem to have a good risk reward, provided (and this is crucial, of course) proper stops are placed. This is because despite everything shown in the above charts, we still haven't seen any decisive downward action to confirm what these charts are suggesting. Until we see that, the trend remains up and these divergences and bearish configurations can feasibly continue and/or work themselves off as the market goes sideways or grinds higher.

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.

22:43 BST - SPX Update: 60 min bearish divergences - but more is required for the bearish outlook

The divergences which were apparent on the 60 min chart yesterday (see here) persisted today against the new high for the rally from the August low and we're starting to see the indicators rolling over:

SPX 60 min:

The weakness suggested by the failure of price to get back above  the median line of the fork last week and its failure to even reach it yesterday seems to have been confirmed by the additional failure today. We may now be seeing a breakdown out of the fork, although its too early to tell if this is going to be of any significance.

Still, this all provides a reasonable foundation for a down move (we can't say what it will be in terms of elliott wave counts until we see how it behaves). 

However, for the bearish case, we do need to see more confirmatory moves in the indicators on the next decline. 

The RSI needs to get below 50 and  then move quickly to oversold, with price also moving down (if it gets to oversold without any real downward price action, that's potentially bullish, as is not getting to oversold on a down move). The CCI needs to move swiftly below the zero line and fail on any re-test from below, before falling below the -100 line. The MACD needs to cross below zero. The stochastic needs to get down to oversold and preferably stay below the 50 line on rallies. The -DI line needs to start moving up and must cross above the +DI line and be confirmed by a rising ADX line.

So, the divergences we're seeing between the indicators and price is only half the story. To have any confidence that we've seen a significant top today, we now need to see movement in these indicators that confirms. Until they move to bearish levels (along with price dropping, of course), the risk remains that any price decline we see is only corrective and that more upside will follow once the bearish divergences have been worked off.

17:52 BST - SPX Update: 60 min time and price chart

Here's a 60 min time and price chart showing the timelines from the daily, but using Gann price levels based on the 1039.70 August low (the levels on the daily chart were based on the July low):

SPX 60 min - time and price:

You can see that there are some nice divergences on the indicators, which would support a wave count that puts us in the vicinity of a high if we didn't top at 1110.27.

Assuming we did top at today's high, I've calculated some Gann based price targets that may attract price on the way down. Watching price behaviour around those levels (assuming we get to any of them!) might provide a clue as to whether the bullish or bearish counts are playing out. 

If its the bullish counts, then I'd like to see price find support somewhere around the 1077 and 1060 levels and show action suggesting a turn back up. If its the bearish counts, I'd like to see price fall easily through the 1093 level and hesitate only slightly at the 1077 level, but then move quickly down to the lower levels and to below the August low.

14:43 BST - FTSE Update

Referring back to my post on 2nd September, the FTSE is looking today like it may now have made that wave up and over its previous high of 5418 I was looking for on both bullish and bearish counts (Please click here to see that post which shows my interpretation of the elliott wave position on FTSE - bullish and bearish).

Today, we've seen what looks like a nice 5 waves down from its recent high at 5459.40. The question now, if we have seen 5 waves down, is whether its a wave A or a wave 1. Obviously, we can't know for sure. We just have to wait and see how it moves back up and once it forms three waves back up, that could be a reasonable place to take a short. However, you'd want to be out above the high of the three waves (or, if your trading rules allow it, above the high at 5459.40).

Here's a view of the FTSE which shows why we may have seen at least a temporary top, aside from the elliott wave count - a confluence of gann fan resistance right at yesterday's high:

FTSE Daily price and time with gann fans:

The green and red fans are drawn with the 1x1 lines connecting the opposite corners of the time and price square (which is based on gann levels). The pink and black fans are drawn from one pivot high across another and from one pivot low across another. You can see that lines from three of the fans crossed at yesterday's high.

Here's another gann chart going back to the February low, showing what appears to be a 48 day cycle from low to high, high to low and now, low to potential high:

FTSE Daily price and time from February low:

Finally, some fibonacci stuff:

FTSE Daily retacement of April to July decline:

As you can see from the chart, in fibonacci terms, we've reached the 61.8% retracement of the decline from the April high - a good stopping point for a 2nd wave retracement if we're in the bearish count. 

Also (but not shown on the chart) the rally from the August low is .618 the length of the rally from the July low to the August high in terms of price, almost to the penny (61.8% would have been 5459.37). In terms of time, its just about .382 x the length of the July/August rally (.618 is the square root of .382).

Finally, as you can see, if you draw an upward pitchfork using the July low, the August high and the August low, FTSE's rally touched the median line of that fork and has backed off from it today. If you're rooting for the bearish count, you want to now see a quick dash for the lower line of the green fork in a move that takes FTSE down and through the median line of the downward blue fork.

Anything less than that, given that the bearish wave count would put FTSE in a 3rd wave down, would have to be cause for concern on the bear case.

16:09 BST - SPX Update: 15 min chart: divergences between price and technical indicators suggest a top should be in or near

Divergences on the 15 min suggest we should be near a top of some sort for this move off the late August low:

SPX 15 min:

Its consistent with a count of 5 waves up near completion from the low on 31 August as shown in my previous post. However, price action needs to confirm now.

14:07 BST - SPX Update: 60 min chart

On Saturday when I looked at the 60 min chart of SPX, I highlighted the behaviour in the technical indicators that  suggested that however bullish the price action appeared to be on Friday, the technicals did not seem to be painting the same picture.

I noted on the chart in that post the sort of things the bear case needed to see and all of them have pretty much occurred with yesterday's action.

You can see this in the updated 60 min chart:

SPX 60 min:

The notes on the chart are self-explantory and identify the further action we would need to see from these indicators to confirm the weakness in the market seen yesterday.

I've also noted on the chart a couple of concerns that may undermine the bear case, at least temporarily:

There is a little bit of a worry that we didn't see any negative divergences between the indicators and price when comparing the high of 26 August and the higher high on 27 August. That raises the risk of another high above 1065.21 being necessary in order to achieve such divergence before the bear case can continue. 

As I've said before, divergences aren't compulsory, but they are often seen at tops and bottoms and help to identify them as such.  A higher high would fit with the count shown in Chart 6 of yesterday's end of day update, as well as the bullish count on Chart 1 of course. So, if this is what we see, it may increase the odds that one of these counts is playing out. If we fail to take out the 1039.70 low (preferably early on in the session), that may be the first sign that more upside above 1065.21 may be on its way.

Even if we don't rally up to take out the high of 27 August before making a new low, the indicators again look like they are set up to diverge positively against any new low in price. As noted on the chart, this would be consistent with the main count on Chart 4 and the alternative shown on Chart 5 of yesterday's end of day update which call for a 5th wave down now, as well as the bullish counts on Charts 2 and 3. which require a [C] or (c) leg down to complete their corrections. 

So, on any new low below 1039.70, I'll be watching for positive divergence between price and the indicators since it  may be a warning of an imminent turn back up in price as happened on Friday (after Thursday's session, the same positive divergence potential had set up and a substantial rally followed - see this post).

So, the lack of follow through to Friday's bullishness was a plus sign for the bear case. However, the bullish counts calling for varying degrees of further upside remain intact, so, as I said in yesterday's end of day update,  it remains a matter of monitoring the levels that elliott wave logic tells us will rule out various counts as price action develops and seeing what we are left with (I identified the levels I'm watching on the counts I'm following in that update)

16:11 BST - SPX Update: Weekly, daily and 60 min charts

Looking at the weekly chart (the last post of this is here), not a great deal changed with last week's action. I think it still looks more encouraging for the bear case than for the bullish case:

SPX weekly:

I won't go into any detail here since its all set out in the notes on the chart. The only thing to add is that the moving averages are getting into almost complete bearish alignment - at the moment, the 20ma is still just above the 50ma (and I do mean "just") and they're all pointing down. In addition, the 13ma halted the rallies we saw this week (price having spiked above it last week but closed below). That seems like bearish action.

However, despite this bearish alignment of the moving averages being almost complete and the indicators behaving in a manner which is consistent with a bearish outlook, we still haven't seen real confirmation in price action. That's what I'm waiting for to gain more confidence in the bearish case because, until we see price action confirm, there's always the risk of price moving suddenly in the opposite direction suggested and turning these moving averages and indicators around.

The daily chart hasn't changed a great deal either, but the indicators are positioned to move up from current levels, suggesting that there is scope for more follow through to the rally we saw on Friday:

SPX Daily:

The notes on the chart should be self explanatory. 

Again, the moving averages are configured bearishly and should provide resistance, along with gap resistance (see the 60 min chart below) and fork resistance, suggesting that we ought to see any further rally fairly well contained. 

However, with the indicators poised to move up, we're just going to have to see how they behave on any further upward move in price.  Just because they are positioned to move up or have already started doing so doesn't mean that the bear case is over. I've noted on the chart what I would like to see if any further rally we get is only countertrend and not the start of a major move up. It would be good for the bear case to repeat  what we saw from the indicators in May after the 25 May low, although for the bear case, I don't think we'd necessarily want to see a rally of that magnitude!

SPX 60 min:

Before the open yesterday I showed the 60 and 15 min charts which looked poised to put in bullish divergences against any new price low, which would likely lead to a rally whether on the bullish or bearish case. That's indeed what we saw.

The rally on Friday certainly caused some bullish looking action in the indicators - and yet, its not quite completey bullish.

For example, it was a near 30 point rally in SPX, but the RSI is still not at the bullish level of 66.67. The CCI is still well below zero. The MACD is below zero and on the directional movement indicator, the +DI line is still below the -DI line.

Price is now at resistance represented by the 50ma, a prior gap,  and the upper line of a pink fork that I've added to the chart since I last posted it.

In theory, we should see some reaction to this in the form of a pullback, but its not out of the question that we just gap up above all of this on Monday. 

Whatever price does, I'll be keeping an eye on these indicators to see what they might tell us about the character of the move. Again, I've noted on the chart what I think we need to see in order to favour the bear case.

10:26 BST - SPX Update: The technical picture on the 60 and 15 min charts - setting up to diverge again on a new price low?

The 60 and 15 min charts are suggesting more downside to come, but also that we may see bullish divergences between price and the technical indicators on any new price low. This would be consistent with the main bearish elliott wave count which has us likely in wave [5] of iii down from the 1129.24 high (see yesterday's end of day update). So, any new low below 1039.83 today would be wave [5] of iii of and once that's complete we 'd expect to see a bounce in wave iv:

SPX 60 min:

The notes on this chart tell the story that the indicators and price seem to be conveying to us (you can see the last post on this chart here).

I really like the way that the RSI was unable to get above 50, and the CCI was unable to get above -100, despite the size of the rally from the 1039.83 low. I also like the way that the MACD came back up to test the broken green trend line from below and appears to be failing there - all occuring below the zero line. All of this seems to confirm that the rallies have been countertrend (even though they may not seem like it).

However, you can see from the notes on the chart that we could be setting up for bullish divergences in these indicators against any new low in price. That would be consistent with the main bearish count where I'm expecting a wave [5] of iii low and then a rally in wave iv. That would be in line with my reading of the behaviour of the -DI line making lower peaks, and the ADX line now moving more sideways than up while the -DI is above the +DI. That's consistent with a weakening in the downtrend.

SPX 15 min:

The 15 min chart  (you can see the last post on this here) paints a similar picture - its always good when different timeframes line up.

Again, the warning signs of a potential low of some sort are building - the directional movement indicator is probably doing this most prominently at this stage, with the lower peaks in the -DI and the ADX.

The blue pitchfork that I drew in off yesterday's high may have gained some validity with that late rally testing its upper line and failing there, but we need to see more confirmation that this may be an important fork to watch by seeing price drop to its median line (taking it out of the green fork).

Although I've said above that these charts are consistent with what is expected on the main bearish count, its important to be aware that its also all consistent with a potentially more significant low being formed on the bullish counts. You can see details of these counts on the first three charts in the end of day update from 25 August.

On those counts, any new low below 1039.83 would mark the end of the corrective moves down from the 1129.24 high so the next move up would be the start of a significant rally if any of those counts is actually playing out.

We should get a clue as to whether or not we're seeing something other than a countertrend rally following any new low today, by watching the behaviour of the technical indicators as price rallies. On countertrend rallies, the indicators should behave in the way I've described in the charts above and in the previous postings of them. Its not conclusive and different timeframes can give conflicting views, but if the indicators start to behave more bullishly, especially if we see this across timeframes, then its a warning that the bearish counts may be under threat.

Of course, if we don't get the divergences that appear to be setting up, and the indicators instead just confirm any new price lows, then things may be rather more bearish than the main count suggests.

16:55 BST - SPX Update: 60 min chart

There are signs of this rally failing at price and pitchfork resistance on the 60 min chart. The behaviour of the indicators so far seems largely consistent with a countertrend rally:

SPX 60 min:

16:47 BST - SPX Update: 15 min chart

There are some bearish signs appearing on the 15 min chart, but as explained on the chart, we probably need to see more to gain confidence that the next leg down may have started as per the main bearish count:

SPX 15 min:

15:30 BST - SPX Update: 5 and 15 min charts: bullish divergences indicate conditions in place for a low

Here's the updated 5 min chart I posted earlier (see the earlier post here) which suggested we might see some bullish divergence between the indicators and price on a new low in price today:

SPX 5 min:

And here's the 15 min chart (I've left the comments as they were for the moment):

SPX 15 min:

The divergences show that the technical conditions for at least a short term bottom exist.

It doesn't, however mean that price can't keep falling - it will do if bearishness remains strong. The divergences are just warnings to stay alert for price action that might signal that a low of some sort is in. Its important to await such action because divergences can be eliminated if price continues to move down.

9:41 BST - SPX Update: Technicals on the daily to 5 min charts

Here's a quick run through the non-elliott wave analysis from the daily to the 5 min timeframes:

SPX Daily:

You can see from the notes on the chart that the indicators look pretty bearish, so not much here to support a serious bullish move at the moment.

We're at an interesting place with regard to the pitchforks. That large green upward fork is at risk. Yesterday's decline took price right down to its lower line, but that's where we bounced. You might recall my 60 min chart from early in yesterday's session that showed price void right down to 1010 and the market was right into that void. Clearly however, traders looking at pitchforks would have been looking at support from the forks, despite the lack of support from prior price congestion so this may have been one reason why the market stopped falling where it did.

SPX 60 min:

Again, you can see from the notes on the chart that the indicators pick up on the bearish theme of the daily chart.

The rebound from yesterday's early low also occurred at an interesting place on this timeframe as far as the forks are concerned - right at the intersection of the lower line of the blue fork and the median line of the red fork.

The rebound took price back to the median line of the blue fork, but that is also the prior pivot low that should have provided support, but that was broken yesterday (lower dotted green line) and price seems to have found resistance there.

In a downtrend, the type of sideways move we saw for most of yesterday builds an area that should provide resistance in the future, provided the downtrend continues (in an uptrend areas of resistance get broken easily). So, provided we break down below the congestion area created yesterday, this congestion should become future resistance to any countertrend rally.  Of course, if we break above it instead of below it, then it should become support and that would potentially be at least short term bullish.

SPX 15 min:

Moving down to this timeframe, while the indicators paint a bearish picture in line with the higher timeframes, it looks  to me like there is potential here for the indicators to diverge bullishly against the next low in price. I've noted this in my comments on the chart. 

This would be in line with the wave counts which suggest that the next low should be a 5th wave of some degree (and what that would mean would differ depending on which wave count is playing out - I explained some of the possibilities in yesterday's end of day update which you can see here) and its on 5th waves that divergences tend to occur.

You can see that I've drawn in a new downward blue fork using yesterday's low and the late afternoon high. If we're going to see a 5th wave down from 1081.58 then we might see price try to get to the median line of this fork and possibly fail, which would be near term bullish. If the 5th wave extends then we could see this fork lead price down to the median line of the larger red fork. If we break up out of this blue fork instead of down and the breakout is not quickly reversed, that could be a bullish sign, so should be considered as at least a warning of more upside to come.

SPX 5 min:

The potential for the indicators to diverge bullishly against price on the next price low is probably more obvious on this timeframe. If the 5th wave that's expected extends, then it may not happen, but I think the possibility is there and is worth watching for.

So, the expectation is for a low below 1046.68 at some point today and before we move above 1069.43 so that we get 5 waves down from 1081.58. This would certianly make the counts look complete even on the three bullish counts I have which you can see summarised here.

If we don't get the new low and instead take out the 1069.43 low (meaning we only had what on the face of it looks like 3 waves down from 1069.43), then something else is happening. 

One possibility is the expanded flat for an on-going wave ii that I've shown as an alternate count over last few days and is shown as the alternate count on the first chart in yesterday's end of day update. If we don't get the expected 5th wave down below 1046.68, the decline from 1100.14 to 1046.68 could count reasonably well as a double zig zag for wave [B]. If that is playing out, we'd expect to see a [C] wave rally to above 1100.14 in wave [C]. We'd have to stay below 1129.24 for this count to remain valid.

Another possibility is the leading diagonal for wave (i) down shown on the third chart in yesterday's end of day update. If that did complete as I've labelled it on that chart, at the low of 1046.68, then we would expect to see a substantial rally in wave (ii) retracing the decline from 1129.24.

So, whether we get the 5th wave that's expected or not, the balance of probabilities suggests that we should see some upside  fairly soon - to what extent will depend on the wave count that is playing out, as explained in yesterday's end of day update. The count shown on the first chart in that update allows for only a very moderate bounce and it could be invalidated quickly on any strength, leaving the other counts shown in the end of day update and in the post on the bullish possibilities to battle it out.

16:06 BST - SPX Update: 15 min pitchforks

I mentioned this morning how price action yesterday seemed to be confirming the validity of the red fork on the 15 min chart (see here). Well, what we've seen today also seems to be validating it as an important fork to watch:

SPX 15 min pitchforks:

You can see that we bottomed (so far) right at the median line of this fork. If things are truly bearish we ought to see this get broken to the downside at some point.

In the meantime, I've added a turquoise fork given the breakdown out of the black one. I would hope to see the current rally from the low get pushed back from around where we are now, at the median line of the black fork, but certainly by the upper line of the black fork at most. A rally much higher would start to raise questions about the immediately bearish case of a i-ii-[1]-[2] down which now has us in [3] of iii.

On my labelling, the count shown in the 1 min chart in my last post won't be invalidated unless this current rally which I would label as wave (4) of [3] ends above the wave (1) of [3] low at 1063.63 [EDIT: SORRY - should have said 1069.63!]. However, I'll be keeping a close eye on these forks for any earlier signs that that low might get taken out.

9:04 BST - SPX Update: 15 and 60 min charts and more on the near term bullish potential and what would help eliminate it

I mentioned in last night's end of day update the risk of near term bullish potential if a) we haven't yet completed wave [2] in the i-ii-[1]-[2] sequence from the high at 1129.24; or b) we only bottomed in wave i at the 1063.91 low and wave ii is still in progress. You can read the end of day update here.

The reason I mention this, aside from the wave count, is the behaviour of the technical indicators on the intra day timframes. I noted at the weekend (see the post here) when I had labelled the late Friday rally as wave (A) of [2], that I expected we'd see some negative divergence occur with price making a new high in wave (C) and the indicators, which should make lower lows against that high. Yesterday, we saw the high labelled (A) taken out but there was no negative divergence in the indicators, as mentioned in my posts during the day.

Now, its not compulsory to have such divergences between price and the indicators, but it does go some way towards confirming that a top of some sort has been made. So, I think its sensible to stay alert to the two near term bullish possibilities I mention above. Having said that, the intra day charts do look bearish.

Here's the picture I'm looking at:

SPX 15 min:

You can see from my comments on this chart that the indicators paint a bearish picture so support more downside to come (we'll just have to wait and see whether any such downside turns out to be a (B) wave decline or if is a 3rd of a 3rd wave down).

Its also nice how the rally into 1081.58 stopped right at the intersection between the rising lower line of the bullish green fork and the falling upper line of the bearish red fork. This seems to confirm the validity of the red fork and that the green fork is unlikely to have any influence on price (at least not bullish influence).

There was further confirmation of the red fork with the second rally into its upper line later on yesterday. You can see how price quickly turned back down from there.

I've drawn in a new downward fork in black. If we're in wave [3] of iii down, this may contain that move, with price at least moving to its median line and perhaps following it down.

SPX 60 min:

The same lack of bearish divergence between the indicators and price into the high at 1081.58 is highlighted here, but again, the indicators are bearish, both in their curent configuration and/or in their behaviour into that 1081.58 high despite the lack of bearish divergence, as noted on the chart.

In both of these charts, the current 3 wave look to the decline from 1081.58 is apparent and with one decent sized gap up or rally, the bearish picture can change quickly, which is why we have to stay alert to the possibility that this is only a (B) wave in wave [2] or a [B] wave in wave ii depending on which of the near term bullish possibilities mentioned above may be playing out. 

As mentioned in yesterday's end of day update, what I would like to see to reduce the risk of the decline from 1081.58 being a (B) wave is a clear 5 wave decline from 1081.58 (taking out 1063.91 won't be enough if we only do it in 3 waves since the decline could still be a (B) wave in an expanded flat). 

I think we've seen too many potential ones and twos forming to the downside in recent action that we now just want a straightforward impulse down without any further messing about. This would help eliminate the near term bullish potential mentioned above, though not the longer term bullish potential mentioned in the end of day update (which remain valid until we take out 1010.91).

If we're in wave [3] of iii as my labelling suggests, then ideally, we should see it extend to at least 1.236 x wave [1] of iii That would take it to about 1035. In my view, this is what the bearish counts call for, so if it doesn't happen, those near term bullish counts have to remain on the radar.

15:25 BST: SPX Update: 15 min chart

You can see that we've hit a nice spot for the end of wave [2] if my previous 1 min close up chart is correct. I think though that if shorting, you need to be aware of the risk of further upside due to the lack of divergences in the indicators as shown on this 15 min chart:

SPX 15 min pitchforks:

14:03 BST - ES Update: 60 min chart

Futures are starting to look like they may be running out of steam. You can see on this 60 min chart of ES that its traded to the upper line of the red fork. Its a specultaive fork since the lower line isn't drawn off a price pivot. However, it does seem to have done a good job of capturing the action since the low on 19 August that touches its lower line:

EX 60 min:

You can see how the rally in price since Friday afternoon took price above the median line of the red fork. Overnight, it had a brief spike down to the daily pivot, bounced back up again and headed to the upper line of the red fork.

It just tried to break above but came back in as it met with the ichimoku cloud resistance.

Now, we're seeing bearish divergence between price and the MACD histogram and the slow stochastic looks like its double topping. If we stay like this into the cash open, the current level of ES suggests a cash price of about 1077 which is about the 38.2% retracement of the decline that I have labelled as wave [1] of iii down (see Friday's end of day update).

If that's where we get to at the open, its  possible that that level will mark the end of wave (A) of [2] and not where I currently have it, so I'd still be alert to the possibility that there is still more upside to come before wave [2] ends. Obviously, this could change if we gap up then just drop below Friday's low. Let's see how the cash opens and what the action in price and the indicators tell us.