13:55 BST - SPX Update: Interesting fib stuff

This is the updated chart that I posted at the weekend with some fib stuff relating to both time and price on 60 min chart of SPX:

SPX 60 min - fib time and price:

According to my calculations, with esignal using 7 hourly bars per day, 144 bars from the 1 July low hits some time today. You might recall that in the rally marked wave (ii), the rally lasted 145 bars, so it would produce a certain symmetry to see this wave ii rally end around the same sort of period.

Also, you might recall that the first leg of the wave (ii) rally was 65 points and the second leg was 89 points. On this wave ii rally, the first leg was 89 points and we have, so far, reached 64 points for the second leg. Again, it would be a nice symmetry of sorts to see yesterday's high end the rally from the 1 July low for this reason.

Whether or not it does, depends of course, on the wave count. One of the counts I have for the move up from the 1 July low suggests that the rally completed yesterday (see the first 1 min chart at the end of last night's update)  However, its by no means certain as you can see from the alternate count shown on that chart and also the count shown on the second 1 min chart at the end of that update.

So, we'll have to wait and see if this fib stuff plays out. While its all very interesting, more important, of course, will be to watch the important levels on the upside and the downside (see last night's update for some that I'm watching) to give us a clue as to near term direction.

11:33 BST - Markets Update: Is FTSE's move now predicting SPX will take out 1173.57?

For a while it seemed like FTSE was leading the main indices to the downside in a number of nested ones and twos (on the bearish count), but recently, its been showing strength and has taken out its high of 21 June 2010, whereas, so far at least, only the transports in the US have achieved this and not even the DAX, which has been the strongest of the main world indices (that I watch), has managed this.

So now, on FTSE, there is no longer a nested ones and twos count for the bearish case. Its now only a [i]-[ii] count, as you can see from this daily chart:

FTSE Daily - from April 2010 high:

You can see from this chart that FTSE has nearly reached the 61.8% retracement level of the decline from the April 2010 high. That level is in line with its declining weekly 200 ma. Perhaps, if FTSE gets up there, that is where it will turn down, if the bearish count is in play (its not certain that it will make it up there, especially not without the other main indices following - wave (y) of [ii] does look reasonably complete now on lower timeframes).

 

The Dax count also has a wave [i] low in early May, but so far, the wave [ii] high is the high of 21 June at 6330.81. At the moment, I have the Dax in a [i]-[i]-i-ii of (i) of [iii] count:

Dax Daily - from April 2010 high:

It doesn't really have to do much to take out the current wave [ii] high to turn it back into a [i]-[ii] count and align it with FTSE. The trouble is that it then doesn't have much room before taking out the April high, which would rule out the bearish count altogher, leaving the bullish count shown, where the move since April 2010 has been a triangle wave (X).

Of course, the Dax doesn't have to align exactly with the FTSE, so it could simply be leading the the way down with the bearish count as currently labelled, and not take out the existing wave [ii] high.

So, if FTSE and Dax had their wave [i] lows in early May, that coincides with the count I have on the chart of Option 1 for SPX - see the 60 min count page, but here is an up to date chart:

This raises the question whether SPX is actually still in wave [ii] and, therefore, likely to take out the high currently labelled as wave [ii] on that chart at 1173.57.

On the current bearish count under this Option, I have SPX in a [i]-[i]-(i)-(ii)-i-ii move off the April high. If we take out the 1131.23 high of 21 June, then it becomes a [i]-[ii]-(i)-(ii) count, which would be pretty much the same as the Dax is showing at present, though the second one and two on the Dax is a degree lower.  Its perfectly possible for SPX and the Dax to lag FTSE in this way to the upside and lead it down on this count, to the downside.

However, if it were to align itself fully with FTSE, that could mean it is destined to take out the current wave (ii) high at 1131.23 and, possibly, the current wave [ii] high at 1173.57, making the whole of the move since the flash crash in early May an expanded flat wave [ii] as you can see from the alternative labels on the chart.

Having said that, its perfectly possible for SPX to have had its wave [i] low in early May with FTSE and Dax, and for it to still be in wave [ii] instead of the nested ones and twos, but not take out the 1173.57 high. This would arise if we have a running flat in progress, which would mean that the alternative wave (y) of [ii] from 1010.91 does not get as high as the alternative wave (w) of [ii]. That could certainly be envisaged if the single zig zag from 1010.91 shown on the chart of Option 3  (see last night's update) is playing out  for the alternative wave (y) of [ii] - it may only need one more high to complete, which may make it unlikely that it will reach the 1173.57 level (see the 1 min chart at the end of last night's update).

So, the action in the FTSE does not necessarily mean that SPX will take out the 1173.57 high. However, the risk remains something to bear in mind until we take out meaningful levels to the downside - I identified some levels to watch in last night's update.

Speaking of upside risk, I should just mention also the potential of alot more upside as long as meaningful downside levels remain intact. You can see on the charts of FTSE and the Dax above the alternative bullish counts.

Unlike most of the main indices, FTSE does have a reasonably nice looking 5 wave count from the March 2009 low. You can see the alternative, bullish count I've placed on this chart which labels the April high as intermediate wave (1), or it could just be wave (A) within a larger primary wave [2] rally.  

The decline from the April high counts OK as  an A-B-C for wave (2),  but its only a 38.2% retracement of the rally from March 2009, so where I have wave (2) could just be wave W of (2) and we would now be in wave X of (2), or the decline from April may be the whole of wave (B) in a Primary wave [2] rally, so wave (C) up would now be underway.

If FTSE had a 5 wave move up from March 2009, this would coincide with the 5 wave impulse count I have for SPX (see here). On FTSE and SPX, that count isn't invalidated unless we take out the March 2009 lows - that's a long way away. 

If FTSE is in an (A)-(B)-(C) for primary [2], that would coincide with the counts I have for SPX shown as alternatives on the zig zag counts (see here), although those counts show SPX in second or third zig zags rather than a single zig zag, but the effect is the same. 

The Dax doesn't seem to have a 5 wave impulse count from the March 2009 low, but the whole rise from that low to the April 2010 high could just be wave (Z) in a primary wave [2]. That would make the decline from April 2010 a wave (X) - and it looks like a triangle which could well have completed at the 20 July low. We would really need to take out the low of wave A of the triangle at 5607.68 to rule out the triangle

So, with the invalidation points for the more bullish counts being so far below where the markets are currently, I don't think its wise to dismiss them from consideration, whatever you might think of the overall economy or the sovereign debt situation. Those issues can't be traded - we've seen that time and again, most recently with the rally from March 2009 which occurred against a backdrop of a largely deteriorating global economy.

The best we can do is to identify the possible paths the market might take, both bullish and bearish (whatever our own personal bias may be) and  from there, to identify the levels  in the market that will tell us when something is or isn't happening or which increase the odds in favour of one count or another.

Looking at the market in this way, I think we remain in a state of flux - either the bullish or bearish counts may be playing out. Nothing has happened so far to tell me that its one or the other. So I have to keep my eye on both.  Either of them has the potential to move quickly once it takes hold and I'm sure it won't be pleasant to get caught on the wrong side.

21:10 BST - SPX Update

The Options shown in the 10 min charts below are the different ways to count the move down from 1219.80. There are 5 that I'm following and you can see the larger context of each on the 60 min counts page.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. The count on the chart of Option 3 anticipates rather more upside even though it is also a corrective move, since it is correcting the whole decline from 1219.80, not just the decline from 1131.23. 

On the charts of Options 1, 2, 4 and 5 I have labelled a double zig zag count from the 1 July low ay 1010.91.

If its complete at today's high, then for Options 1 and 2 we would now be about to start a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be about to start wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be about to start (iii) of [c] of minor Y down - again, temporarily bearish. 


On the chart of Option 3 I've labelled a single zig zag which  would be minute [c] of  minor 2 up. It does not yet look complete. However, note, the double zig zag count could also be applied here since that has retraced a sufficient amount of the decline from 1219.80 to be a minor 2 correction of that drop.  If that completed today and we apply it to the chart of Option 3, it means that we should be starting minor 3 down now.

Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:

Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

Its possible to count the double zig zag as complete at today's high. At that level, [Y] is about .70.7 x [W]. Also, within [Y], wave (C) is just over 1.618 x wave (A). Also, its about  a .886% retracment of the decline from 1131.23.

If wave ii is not complete, then the level to watch remains 1131.23 on any further rally. Exceeding that level will invalidate the count (though it won't preclude a continuing correction in wave (ii) - see the commentary on the 60 min counts page).

On the downside, the main level to watch is initially 1096.38. If that is taken out, it rules out the extending wave (3) shown on the chart below.  After that, there is the low at  1065.25. If that is taken out, the chances are good that the corrective move is over. Until then, the risk remains that any declines will simply be a precursor to new highs.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:

For this Option, five waves down from 1131.23 represent wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would be about to start wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (although the wave degrees are different), so the invalidation point and the levels to watch on the downside are the same.

Option 3 - Ending diagonal complete at 1010.91

10 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 could be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up.  

It remains to be seen whether we completed wave (iii) of [c] at today's high or only wave i of (iii) of [c].

If we completed wave (iii) today any wave (iv) pullback has to stay above 1088.96. If its only wave i of (iii), then we have to stay above 1065.25 on any pullback in wave ii of (iii). These are the levels to watch to rule out one or other of the counts.

As mentioned above, its possible to apply the double zig zag count to this Option given how far that has retraced. If we do that and that double zig zag is complete at today's high, then minor 2 should be over and we should now be starting minor 3 down. So far, we haven't moved down in a manner that suggests this is the case, but it may still be too early to tell. For the time being, we just have to watch the levels mentioned and while they remain intact, further upside potential will remain.

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:

For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c].

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, then, looking at the chart of Option 3, the high marked [a] would be wave [i] of A and the  low marked [b] would be wave [ii] of A - see the bullish alternate chart for Option 4 on the 60 min counts page.

For the moment, I've assumed we are completing a double zig zag for wave (ii) of [c], if it is not already complete at today's high.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.

Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:

On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

This is the same double zig zag shown for Options 1, 2 and 4, so the same invalidation point and levels to watch stated for  options 1, 2 and 4  apply here.

Here is the updated 1 min chart of the double zig zag, showing the count for 5 waves up from the 1065.25 low (this 5 waves would be wave [C] of a second zig zag for Options 1, 2, 4 and 5, or it could be wave i of (iii) or (iii) on the Option 3 chart).

SPX 1 min - from 1065.25:

It shows either a complete 5 waves up at today's high, followed by a (1)-(2) down (see the chart posted in the 20:00 BST update), or wave (3) still in progress with wave 4 of (3) possibly forming a triangle. 

Based on the above chart, if we take out 1096.38, in an assumed wave 4 of (3) pullback, the sub-dividing wave (3) is out and its likely that we completed 5 waves at today's high. On Options 1, 2, 4 and 5, that should mark the end of the second zig zag and complete the correction of the decline from 1131.23. On Option 3, it could be wave (iii) of [c] or just wave i of (iii) of [c].

Here's a close up of the single zig zag count shown on the chart of Option 3:

SPX 1 min - single zig zag:

You can see that from today's high, there may be a triangle forming. That would suggest that today's high was wave (iii) of [c], not i of (iii), since the triangle would have to be a 4th wave. If correct, then one more high should see the end of this zig zag.

If a double zig zag from 1010.91 is complete at today's high, we should start to drop impulsively (because one of the bearish Options (1, 2, 4 or 5 would be playing out). If we don't, the risk remains that there may be more upside to come with the 3rd wave of the last leg of the second zig zag still in progress or more upside to correct the decline from 1219.80, if option 3 is playing out. Or, it increases the chance that one of the even more bullish possibilities mentioned above and on the 60 min counts page may be at work. 

20:00 BST - SPX Update

Well, if we did top in the double zig zag count at today's high (see my earlier post at 16:07 BST) there would now be another set of ones and twos on the chart I posted at 17:01 BST. To avoid that, here's a possible count that makes the whole of the sideways move today a wave (2):

SPX 1 min chart - double zig zag top at 1120.95, (1)-(2) down:

Today's high is the invalidation point for this count. Please refer to the 16:07 BST post for the other levels to watch.

17:01 BST - SPX Update

Continuing on from my earlier post, the decline from today's high probably looks more corrective, so could well be wave (iv) of [c] on the single zig zag count shown on the chart of Option 3, or 4 of (3) of [C] shown on the charts of Options 1, 2, 4 and 5 and the chart I posted earlier.

However, if we have topped in the double zig zag count, the corrective look of the decline may just be because we're forming a (1)-(2)-1-2 down:

SPX 1 min chart - nested ones and twos from 1120.95:

The count is invalid if we move above the wave (2) high at 1116.81, so we could know pretty soon whether or not this is a possibility.

16:07 BST - SPX Update

Remember, from last night's update, basically, we're looking at a single or double zig zag up from the 1 July low. The single zig zag is shown on the chart of Option 3 while the double zig zag is shown on the charts of Options 1,2,4 and 5.

Zooming in, we're looking for a 5 wave move up from the 1065.25 low marked on those charts. On the single zig zag count, this would likely be wave (iii) of [c] of 2 (using the degrees shown on the Option 3 chart). On the double zig zag, this would likely complete wave [C] of the second zig zag and, therefore, would probably be the end of the correction from 1 July.

Here's the updated chart of the count of 5 waves up from 1065.25 from last night:

On Options 1, 2, 4 and 5, the decline from today's high could either be the start of the 3rd of a 3rd that we're looking for on those bearish Options, or its simply part of the 3rd wave of 5 up from 1065.25, so we would still have a few more ups and downs to go before we top. To rule out the latter we need to take out 1096.38 without making a new high.

On Option 3, the decline from today's high would probably be wave (iv) of [c], so any new high from here could well be the high of minor wave 2. If we take out 1088.96 before making a new high, then the decline from today's high can't be wave (iv) and so we may well have topped in minor 2, perhaps because the double zig zag was playing out on this chart rather than the single zig zag. 

The risk on this single zig zag count is that those 5 waves up from 1065.25 may only be wave i of (iii) - we need to take out 1065.25 to avoid that.

9:25 BST - Dollar Update

I'm still looking for the end of the decline in the dollar from its 7 June high. I've relabelled the count to an A-B-C for intermediate wave (2):

Dollar Index 60 min chart:

I can count 5 waves down from the B wave high at 83.600, with wave [v] of C looking like an ending diagonal. Its possible that the ending diagonal is complete at today's low of 81.913, but it may only now be in its 4th wave, so there would be another low to come. If that's the case, I've shown with the gray line where a 4th wave rally would invalidate the diagonal by causing the lines to become parallel. Also, if today's low is only the 3rd wave of the diagonal, the 3rd wave is 1115 points long, so wherever the 4th wave tops, the 5th wave will need to be shorter than that for the diagonal to remain valid.

The bullish divergence between price and the MACD continues to suggest that a low ought to be near, but until price actually delivers on that, the trend is firmly down. An initial sign of a possible trend change might be if we can get above the wave [iv] of C high at 83.451, but it would need to show impulsive qualities in getting there in order to give any confidence that its not just pullback prior to new lows.

22:12 BST - SPX Update

The Options below are the different ways to count the move down from 1219.80. There are 5 that I'm following and they are set out on the 60 min counts page.

Options 1, 2, 4 and 5 imply that the rally from the 1 July low is correcting the decline from 1131.23 only, so will  be invalidated above 1131.23. The count on the chart of Option 3 anticipates rather more upside even though it is also a corrective move, since it is correcting the whole decline from 1219.80, not just the decline from 1131.23. 

On the charts of Options 1, 2, 4 and 5 I have labelled a double zig zag count from the 1 July low ay 1010.91.

Its possible that this double zig zag completed at today's high.
If correct, then for Options 1 and 2 we would now be about to start a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be about to start wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be about to start (iii) of [c] of minor Y down - again, temporarily bearish. 


On the count that places us in a 5 wave move off the 1 July low (Option 3), which would be part of a larger correction up,  we seem to be in minute [c] of  minor 2 up.

Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:

Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

Its possible to count the double zig zag as complete at today's high of 1115.01. At that level, [Y] is about .618 x [W]. Also, within [Y], wave (C) is nearly 1.618 x wave (A). Also, its nearing a .886% retracment of the decline from 1131.23.

If wave ii is not complete, then the level to watch remains 1131.23 on any further rally. Exceeding that level will invalidate the count (though it won't preclude a continuing correction in wave (ii) - see the commentary on the 60 min counts page).

On the downside, the main level to watch is probably 1065.25. If that is taken out, the chances are good that the corrective move is over. Until then, the risk remains that any declines will simply be a precursor to new highs.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:

For this Option, five waves down from 1131.23 represent wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would be about to start wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (although the wave degress are different), so the invalidation point is  the same and the same comments made in respect of that count also apply here.

Option 3 - Ending diagonal complete at 1010.91

10 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 could be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minute [c] of minor wave 2 up.  

The ending diagonal count shown during the past couple of days was invalidated with the move above 1112.98, so it looks like wave [c] is developing as an impulse. Whether we've completed or are completing wave (iii) or only wave i of (iii), remains open to question.

If we completed wave (iii) today or are about to, any wave (iv) pullback has to stay above 1088.96. If its only wave i of (iii), then we have to stay above 1065.25 on any pullback in wave ii of (iii).


There may actually be another potential ending diagonal that may be forming from the 1056.88 low. This arises because of the way price has moved up and the way momentum is diverging. However, I would have us completing wave (iii) of the ed at today's high or slightly higher, so we need to see if any wave (iv) pullback overlaps with wave (i) of this potential ed. For the moment, its just something to watch - here's the chart with the lines of the potential ed sketched in:

SPX 1 min - wave [c]:

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:

For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c].

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, then the impulse wave I have labelled on the chart of Option 3 would apply here - see the bullish alternate chart for Option 4 on the 60 min counts page.

For the moment, I've assumed we are completing a double zig zag for wave (ii) of [c], if it is not already complete at today's high.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture.

Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:

On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

This is the same double zig zag shown for Options 1, 2 and 4, so the same invalidation point stated for  options 1, 2 and 4  applies here.

Here is the updated 1 min chart of the double zig zag, showing the count for 5 waves up from the 1065.25 low (this 5 waves would be wave [C] of a second zig zag for Options 1, 2, 4 and 5, or it could be wave i of (iii) or (iii) on the Option 3 chart).

SPX 1 min - from 1065.25:

With today's move, I've relabelled it to show either a complete 5 waves up at today's high, or a sub dividing 3rd wave. 

Based on the above chart, if we take out 1096.38, in an assumed wave 4 of (3) pullback, the sub-dividing wave (3) is out and its likely that we completed 5 waves at today's high. On Options 1, 2, 4 and 5, that should mark the end of the second zig zag and complete the correction of the decline from 1131.23. On Option 3, it could be wave (iii) of [c] or just wave i of (iii) of [c].

If a double zig zag from 1010.91 is complete at today's high, we should start to drop impulsively (because one of the bearish Options (1, 2, 4 or 5 would be playing out). If we don't, the risk remains that there may be more upside to correct the decline from 1219.80, if option 3 is playing out. Or, it increases the chance thatone of the even more bullish possibilities mentioned above and on the 60 min counts page may be at work. 

18:38 BST - SPX Update

The ending diagonal count, as labelled, will be negated if we move above 1112.98 because that would make wave (v) of the diagonal (see highlighted labels) longer than wave (iii).

If that happens, we're probably in one of the other counts shown, either a (i)-(ii)-i up or we're seeing wave (iii) of [c] play out today (you can see the count for 5 waves up from 1065.25 on the second chart posted in my earlier update):

SPX 1 min  - wave [c] of minor 2:

15:46 BST - SPX Update

H

Here's how the ending diagonal I showed at the weekend looks now:

SPX 1 min - ending diagonal for [c] of 2:

Taking out the wave (iii) high of the diagonal labelled would be an initial indication that it might be over. The next three levels I've marked on the chart, the wave (iv) low, the wave (ii) low and the 1065.25 level (which would be wave b of (i) in the diagonal), would give even better signals that it may be over.

However, the best sign that the correction is over is still taking out the 1056.88 low, so any short trades above that level need to bear in mind that we could yet have higher highs to come in the (i)-(ii)-i count shown, or the leading diagonal possibility I mentioned at the weekend.

The count for a straight impulse up from 1065.25 for wave [C] of a second zig zag looks like it may need another high if that is the count playing out. Taking out 1104.63 ought to be an initial sign that its already topped, but in this count, the most likely sign of a top would be taking out that wave [B] low at 1065.25. Here's the chart:

SPX 1 min - wace [C] of second zig zag from 1065.25:

16:01 BST - SPX Update: Ending diagonal wave (c) in a zig zag from the July low

In Thursday night's 22:41 BST update, I said that we might be forming an ending diagonal from the 1056.88 low. That could still be the case with Friday's action. The tentative lines I drew in for the diagonal at that early stage have altered, and I've also altered the count for Option 3 from being in wave (v) of [a] to being in wave [c] of 2 (although the former remains possible and could mean alot more upside to come).

Here is the updated chart:

SPX 1 min chart - zig zag from 1 July low:

.

The potential ending diagonal is marked by the red lines and the labelling is highlighted with yellow circles. If wave (iii) of the diagonal is not yet done, the wave (iv) pullback mustn't get to the blue dotted line - that's where the lines would be parallel instead of converging. If we don't make a higher high on Monday (for wave (v) of the diagonal) and then get to that blue dotted line, then I would say that we are in the main count, namley, a (i)-(ii)-i for wave [c]. If we take out the 1065.25 low than that would be invalidated. In that case, we'd probably be in one of the other, more bearish counts. 

Or, perhaps we'll be able to say that we had a rule breaking ending diagonal -  waves (i) and  (ii) of the diagonal would be where I have them for the (i)-(ii)-i count, wave (iii) of the diagonal would be where I have the highlighted wave (i), wave (iv) would be where I have the higlighted wave (ii) and wave (v) would be where I have the highlighted wave (iii). It would be rule breaking because wave (iii) would be longer than wave (i), albeit by about 0.17 points. Would that really rule it out as an ending diagonal? 

If we do make a higher high on Monday, provided it stays below 1112.98, then the diagonal count is still potentially valid. We would need to see a quick reversal back to the start of the diagonal at 1056.88 to gain confidence that it is the correct count.

Note: this single zig zag count could also apply to the bearish Options, 1, 2, 4 and 5, where I currently have double zig zags. Its more likely to be applicable there if wave C is forming an ending diagonal which is nearly complete, given that for those Options, the 1131.23 high is the limit for their corrective waves.

Two bullish possibilities to be aware of with this diagonal:

1) it could be a leading diagonal 1st wave within a 3rd wave up - on the bullish alternative chart of Option 4 posted on the 60 min counts page, you will see that I have a wave [i] and [ii] from the 1 July low. This diagonal could, therefore, be wave (i) of [iii] on that count. We'd have to take out the 1056.88 low to avoid this;

2) using the original count I had for Option 3 where 1099.46 was wave (iii) of [a] and 1056.88 was wave (iv) of [a], the diagonal could be an ending diagonal wave (v) of [a], so, after a wave [b] pullback, we would have further upside in wave [c]. We would need to take out the 1010.91 low to avoid this.

15:14 BST - SPX: Impulse from March 2009 page and Zig Zag from March 2009 page updated

See here and here.

13:48 BST - SPX - Interesting fib stuff (well, I found it interesting)

Here's a chart with some fib stuff that I found quite interesting, even though it may have no predictive value.

The chart is the 60 min chart of Option 1:

Time wise, each down move since the April high has taken about 63 - 67 bars on the 60 min chart. That's about 2 x the fibonacci number 34.

As far as rallies go, the recovery after the flash crash took 36 bars. The wave from the low marked (i) to the high marked (ii) took 145 bars. No obvious relationship, but 145 is just one more than 144 (fib number) and 36 x 4 is 144. The number 4 is considered by some to be an important time factor due to the planet/time relationships (the earth rotates 360 degrees in one day; 24 hours in one day is 1440 minutes; every 4 days, the earth rotates on its axis 1440 degrees).

The wave from the low marked i to Friday has taken 124 bars so far. Perhaps we might see an end to the move up around the 144 bar mark some time on 27/28 July, but it may not extend to a 1:1 relationship. 128 bars would be .886 x 144 -  .886 is the square root of .786. That would suggest a high in the first few hours of trading on Monday, which would be consistent with the chart I showed at the end of last night's update suggesting one more high is needed to complete the double zig zag count for the move up from 1010.91.

Points wise, within the flash crash recovery, wave (a) was about 66 points - fib 34 x 2. The (b) wave was 37 points - just more than fib 34. The (c) wave was 79 points - well, 10 short of fib 89, but 79 is .886 x 89.

Within the wave marked (ii), wave w was 65 points - nearly fib 34 x 2. Wave x was 63 points - nearly fib 34 x 2. wave y was 89 points - fib 89.

Within the latest rally from 1010.91, wave [W] was 89 points - fib 89. Wave [X] was 43 points - about .5 x fib 89 or 2 x fib 21. Wave [Y] is currently 46 points - just over .5 x fib 89. If it extends to 2 x fib 34, that would give us 1124 as a potnetial end point, but at 46 points, its just in excess of .618 x 68. 

As to the declines, the size of each isn't obviously fib related, but wave (i) was just about .886 x wave [i] and wave i is .886 x wave (i).

As to the rallies, wave (ii) was nearly .886 x wave [ii] and wave ii will be .886 x wave [ii] at 1106 (its already equal to wave (ii)).

Of course, none of this means that this count, or any of the bearish counts I have is correct or that any of the fib relationships will play out. For all I know, we have started the next bull market (as my bullish alternative for Option 4 might suggest). All we can do is watch the levels that we consider to be important to try to glean some idea of what is playing out. I identified the levels I'm watching on the various Options I'm following in last night's update (and on the 60 min counts page which I updated today). I'll just add the above to that list of points to watch out for.

10:49 BST - 60 min counts page updated

I've updated the 60 min counts page. I've also given the levels to watch following this week's action.

22:00 BST - SPX Update

The rally from the 1 July low can still be counted as a correction of the decline from 1131.23, as shown in the charts below for Options 1, 2, 4 and 5. These corrective counts, as labelled, would be invalidated above 1131.23, so the count on these charts assumes a limited amount of upside. The count on the chart of Option 3 anticipates rather more upside even though it is also a corrective move, since it is correcting the whole decline from 1219.80, not just the decline from 1131.23. (The Options are the different ways to count the move down from 1219.80. There are 5 that I'm following and they are set out on the 60 min counts page).

On the counts that imply the rally from the 1 July low is correcting only the decline from 1131.23 (Options 1, 2, 4 and 5) the counts have been revised with today's new rally highs, to show a different double zig zag count from the 1 July low ay 1010.91.

Its possible that this double zig zag completed at today's high, as shown in the chart I posted at 20:06 BST.   

If correct, then for Options 1 and 2 we would now be about to start a 3rd of a 3rd wave down at various degrees - both very bearish. For Option 4, we would be about to start wave (iii) of [c] of minor Y down - temporarily bearish. For Option 5, we would be about to start (iii) of [c] of minor Y down - again, temporarily bearish. 

However, I've posted a chart below showing a count for the move from 1065.25 that anticipates a new high to complete the zig zag, so beware. 

On the count that places us in a 5 wave move off the 1 July low (Option 3), which would be part of a larger correction up,  I've re-labelled it in accordance with the count I showed last night on the 10 min chart. It puts us currently in wave [c] of minor 2 up.

Here's how things stand after today: 

Option 1 - Wave (ii) of [iii] topped at 1131.23

10 min chart:

Five waves down from 1131.23 on this Option represents wave i of (iii) of [iii] of minor 1. The double zig zag I have labelled from the 1010.91 low would be wave ii of (iii), so implies that we would be in wave iii of (iii) once the correction of the decline from 1131.23 is complete.

Its possible to count the double zig zag as complete at today's high of 1103.73. At that level, [Y] is about .50 x [W]. Also, within [Y], wave (C) is about 1.236 x wave (A). Also, its about a 78.6% retracment of the decline from 1131.23.

If wave ii is not complete, then the level to watch is 1131.23 on any further rally. Exceeding that level will invalidate the count (though it won't preclude a continuing correction in wave (ii) - see the commentary on the 60 min counts page).

On the downside, the main level to watch is probably 1065.25. If that is taken out, the chances are good that the corrective move is over (and it would preclude the i-ii-[1] count shown on the chart of Option 3). Higher levels to watch for earlier potential signals are given at the end of this post.

Option 2 - Wave [ii] topped at 1131.23

10 min chart:

For this Option, five waves down from 1131.23 represent wave (i) of [iii] of minor 1 down. The double zig zag up from 1010.91 would be wave (ii) of [iii], so, assuming its complete, we would be about to start wave (iii) of [iii] down.

This is the same labelling as on the chart of Option 1 for the rally from 1 July (although the wave degress are different), so the invalidation point is  the same and the same comments made in respect of that count also apply here.

Option 3 - Ending diagonal complete at 1010.91

10 min chart:

For this Option, 5 waves down from 1131.23 to 1010.91 could be  wave [v] of a leading diagonal down from 1219.80 and, therefore, minor wave 1.  

It places us now in minor wave 2 up.  I've changed the labelling to show wave [a] of minor 2 complete at 1099.46 and so, we would now be in wave [c] up. That wave needs to be a 5 wave impulse or an ending diagonal  (see my post at 22:41 BST last night).  The way it is developing at the moment, it could be forming either a straight impulse which is sub dividing, or an ending diagonal. The latter may have less upside potential.

If we take out the low at 1065.25, the labelling from the [b] wave low will be invalid. It may be that wave [b] is still in progress, or it may be that this Option is not the one that is playing out.

(By the way, if we are in an ending diagonal for [c], I could apply the same a-b-c labelling on the charts of Options 1, 2, 4 and 5 for the move up from 1 July, so we would have a simple a-b-c correction for their 2nd waves on those bearish Options).

Option 4 - Wave [b] of minor Y within intermediate (X) topped at 1131.23

10 min chart:

For this Option, 5 waves down from 1131.23 would be wave (i) of [c] of minor Y and the double zig zag up from 1010.91 would be wave (ii) of [c].

However, as mentioned previously, counting a complete 5 waves down to 1010.91 does bring in the possibility that wave [c] of Y is done so we have also completed intermediate wave (X) - see the 60 min counts page. That would put us now in a minor wave A rally and eventually take us to new highs. If wave (X) did end at 1010.91, then the impulse wave I have labelled on the chart of Option 3 would apply here, though where I have wave [a] would be wave [i] of minor A

For the moment, I've assumed we are completing a double zig zag for wave (ii) of [c], if it is not already complete at today's high of 1103.73.

If we take out 1131.23, then the bullish possibility mentioned above is likely to be playing out, assuming Option 4 is the correct count on the bigger picture. The downside levels to watch are the same as for Option 1.

Option 5 - Minor wave X within intermediate wave (X) topped at 1131.23. Now in minor Y down

10 min chart:

On this Option, 5 waves down to 1010.91 would be wave [a] of minor Y down and the retracement would be wave [b]. If its over, we would now be headed down again in wave [c] to complete minor Y.

I've re-labelled this with the same double zig zag shown for Options 1, 2 and 4, so the same invalidation point stated for  options 1, 2 and 4  applies here and the downside levels to watch are the same as stated in respect of Option 1.

Here is the updated 1 min chart of the double zig zag I posted at 20:06 BST. That one showed it as potentially complete at 1103.73. However, with the late drop and rally back up, here is another count that anticipates a further high in order to complete the move: 

SPX 1 min - from 1065.25:

So, a further rally high may be in the works before the double zig zag shown can be counted as complete. Based on the above chart, if we take out the low at 1097.13, its likely that it is complete, but taking out the low at 1087.88 would greatly increase the odds of this beng the case. 

Of course, once a double zig zag from 1010.91 can be counted as complete, we should then start to drop impulsively if one of the bearish Options (1, 2, 4 or 5) is playing out. If we don't, the risk remains that there may be more upside to correct the decline from 1219.80, if option 3 is playing out. Or, it increases the chance thatone of the even more bullish possibilities mentioned above and on the 60 min counts page may be at work. 

Have a great weekend!

20:06 BST - SPX Update

Well, we have a possible top for the double zig zag I posted earlier. Taking out the wave 4 low at 1099.72 would increase the odds that it is complete, though it might be safer to wait for the wave (4) low at 1090.22 to be taken out:

SPX 1 min - complete [C] wave of second zig zag, starting at the 1065.25 low: