14:23 BST - SPX Update: Cycles from March 2000 high suggest a turn is close

Here's a chart of two cycles that start from the March 2000 high and which have clearly continued to influence the market, marking some signifcant turns, including the 6 March 2009 low and the April 2010 high (the red cycle also caught the October 2007 top):

SPX Daily: Cycles from March 2000 high - larger view:

The grey lines mark the larger cycle while the red lines mark the smaller cycle. Between them they've done a pretty accurate job of catching turning points, although I've marked with red boxes three occassions where a turn didn't occur on the grey cycle.

So, its not perfect, but using a good trading system, which includes stop losses, with these cycles would limit any losses at times when the cycles don't mark turns. Essentially, it boils down to waiting for price action that suggests a turn and not just trading on the basis of a move into a cycle line.

Here's a zoomed in look:

SPX Daily Cycles from March 2000 high:

You can see that the August lows came at a point where the grey and red cycles coincided.

We're now at a red cycle line, but no signal has been given by price action as yet. It may well be that we continue up or sideways (see, for example, the sideways moves into the grey cycle in early and late August, each of which were followed by big moves) into the next grey cycle line where a red cycle line is also located only a day apart. Those two lines come in on 22 and 23 September.

However, the daily chart showing the cycle I've been following from the April 2010 high  (see the last post on that here) suggested a turn due on 10 September. We're still within that time frame. Interestingly, that cycle's next date is 22 September.

So, timewise, there's reason to be on the look out for a turn. Looking at the elliott waves, there are reasons to be looking for a turn, even on the bullish counts (see yesterday's end of day update). On the 60 min technicals, there are reasons to be looking for a turn (see the divergences on the chart in this post from yesterday).

Its a good recipe for a turn. However, the missing ingredient is price - we just have to await price action that suggests a turn (and then assess the action to see how significant any turn may be - the cycles can't tell us that).

10:28 BST - Dollar Update

The risk of further downside referred to in my last update on the dollar (which you can read here) in the absence of impulsive upward movement to confirm a low, played out once again, negating the count that assumed the start of wave (iii).

Here's the 120 min chart showing the labelling for the decline from the June high:

Dollar 120 min:

The bearish count is that the June high was intermediate wave (1) up, and the August low was intermediate wave (2). The rally since is the start of intermediate wave (3) up,

However, note the bearish alternative, which is one of the bearish possibilities outlined on the dollar page.

I've relabelled the 60 min chart to reflect the move since Monday. The bullish count therefore, is that a wave (ii) correction of the rally from the August low at 80.085 is continuing:

Dollar 60 min:

The retracement in wave (ii) has now reached the 70.7% level. You can see on this chart and on the 120 min chart above, that the decline looks like 3 waves. If it did bottom at 80.997, then wave y is about a 1.236 extension of wave w. The move off the low at 80.997, which I've tentatively labelled as wave (ii), is starting to look impulsive. 

However, there remains the risk that the decline from 82.987 is 5 waves and would be only wave [A] of y and we would now be in wave [B] before a further decline in wave [C], perhaps to the 78.6% retracement level.

This risk would only be ruled out if we take out the high at 82.987 in 5 waves. If it happens in only a 3 wave move, there's a risk that even if  the decline from that high is only 3 waves as labelled, all we're seeing is an expanded flat for wave y, where wave [B] takes out the start of wave [A] and then a decline in wave [C] follows just when it seems that the decline is over.

As I've said above, the move up from the 80.997 low is starting to look impulsive, but at present it counts best as 3 waves as labelled. If this labelling is correct, the next decline would be wave (4) so it would have to stay above the wave (1) high at 81.094 for this labelling to remain valid. Taking out that high on the next decline would be a good sign that further downside may be on the cards. It would certainly look best if this assumed wave (4) retraced only to the area of wave 4 of (3) at about 81.466 on this labelling. That's at about the 38.2% retracement level assuming a wave (3) high at 81.767 (I haven't labelled this yet). If we decline much below that in wave (4), I'd start to get suspicious of this move up as an impulse in the making.

If we get a wave (4) and (5) to complete 5 waves up from the low at 80.997, the next thing to watch for is a 3 wave decline that stays above that low. A move below that low will negate the assumption made for this labelling that wave (ii) bottomed there.

So, the three levels I'm watching for now are 81.446, 81.094 and 80.997.

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.

21:18 BST - SPX End of Day Update

Although another new high for the rally from the August lows was put in today, we remain below the 1129.24 level on SPX, so the bearish [i]-[ii]-i-ii count has survived another day.

Its possible that its finally complete at today's high with wave [C] of wave ii as an ending diagonal which started at 1040.88. It really doesn't have a great deal of room left if it didn't end today. Still, if we do take out 1129.24, the bear case will survive with the count that has us in a zig zag up from the July low. That could be counted as complete at today's high, with 5 waves up from 1039.70. 

However, on both of these counts, we have to see some really impulsive downside movement to confirm because, the diagonal or 5 waves up that can be counted as complete would represent the next impulse up in larger rallies on the bullish counts under Option 4 (see charts 2 and 3 in the update on the bullish counts posted last Thursday).

For the bigger picture on the bullish and the bearish counts please refer to the 60 min counts page.

Price action continues in such a way that both bullish and bearish counts remain open. I'll show the wave counts on the charts of the bearish case but keep in mind, as I've said above, that a complete diagonal or impulse up from the August lows could be part of the larger rallies anticipated if the bullish counts are actually playing out.

Chart 1: SPX 1 min - ending diagonal from 1040.88:

This shows the whole of the move up from 1040.88 as an ending diagonal for wave [C] of ii. Wave (4) didn't overlap wave (1), but the EWP book suggests that that can happen and since it otherwise looks like a diagonal, with the overlapping waves, it would seem to be OK to label it as such.

As you can see, its possible to count it as complete today. If its not complete and wave (5) is still playing out, it has to stay below 1129.24, otherwise the [i]-[ii]-i-ii count is invalidated.

On the bullish counts, this diagonal would be a leading diagonal for a wave (i) or [i] up.

Here's a close up showing the count from the 1101.53 low:

Chart 2: SPX 1 min - ending diagonal from 1040.88:

As you can see, I've tentatively labelled a wave 1 down complete from today's high. This would be the start of wave iii of (iii) down on this count. Obviously, the invalidation point for this count is today's high.

I think that if we can take out the low at 1115.58, that will improve the odds for this count. Taking out that low would avert the possibility that the alternative labelling that has us still in wave (5) is playing out. That's  because wave (5) has to be a zig zag and taking out that low would mean the move up from 1115.58 is not a zig zag.

If there is more upside to come and we take out the high at 1129.24, then that will invalidate the overall [i]-[ii]-i-ii count. As explained on the 60 min counts page, that would still leave a [i]-[ii] count (so we'd be in wave [ii], not wave ii). However, as I've said over the last few weeks in the updates to the 60 min counts page, if that happens, I would certainly favour the count that has us in minor 2 in the form of a zig zag up from 1010.91. (Option 3 on the 60 min counts page). As mentioned a couple of weeks ago, that count is probably looking better anyway, even if we don't exceed the 1129.24 high.

Here's the count for 5 waves up from 1039.70 which would apply to the zig zag up from 1010.91 (and also to the bullish alternate counts shown under Option 4 on the 60 min counts page):


Chart 3: SPX 1 min - 5 waves up from 1039.70:

As you can see, this count for 5 waves up from the August low could be complete at today's high. However, the alternative labelling suggests we only completed wave [3] of v at today's high, so still have another high to come.  If we take out 1110.27 (the wave [1] of v high) without making a new high, that possibility will be eliminated. 

So, after today's action, here's what I'm watching:

1) for the [i]-[ii]-i-ii count, we need to stay below today's high if wave ii completed today. If not, we have to stay below 1129.24. If we take that out, this count is invalidated;

2) if we completed wave ii (shown in charts 1 and 2 above) or wave 2 (shown in chart 3 above) today, we need to see price action to confirm: we need to stay below today's high, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we haven't seen this, though the late sell-off today may be the start of it. Taking out 1101.53 in an impulsive move might help to increase confidence in this possibility, but I think it would have to be followed swiftly by a move below 1091.15;

3) if we take out 1129.24, that will focus attention on the zig zag from 1010.91 count and the bullish counts under Option 4. That zig zag would be minor 2 up, as shown in the update posted on Thursday,  and its bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it today or be on the verge of doing so, or the move up from 1039.70 could just be wave (i) of [c]  of 2. If we take out 1039.70 on the next move down, that would confirm the completion of wave 2 as a zig zag. It would also eliminate the two bullish counts under Option 4 (although they remain potentially in play in some other form until 1010.91 is taken out).

17:37 BST - SPX Update on the [i]-[ii]-i-ii and zig zag counts

So, taking out yesterday's high means wave ii on the [i]-[ii]-i-ii count didn't end then. 

From today's low its possible to count a double zig zag:

SPX 1 min - ending diagonal for [C] of ii:

However, it also possible to count the rally from today's low as 5 waves, which would be only wave A of (4) on this count. If that's the case, then on the next pullback we have to stay above the low at 1115.58. This is because wave (4) has to be a zig zag. This means wave B can't take out the low of wave A.

If we have completed the diagonal then we need to drop in a manner that is consistent with that. So far we haven't, so there must remain doubt on this.

Remember, this count is invalidated above 1129.24. 

If it gets invalidated, the bear count becomes the zig zag from 1010.91, which is currently labelled as being in wave [c] up:

SPX 1 min -  zig zag from 1010.91:

The 5 waves up from today's low that I've labelled on the first chart could well be the final 5 waves up within wave [5]  of v. Although I have it labelled as being only the first wave of [c], as I've said before, and as shonw by the alternate labels, its more than possible that its the whole of wave [c] (even if we don't take out 1129.24) so once this rally from the August low ends, minor 2 would also be at an end.

Today's high would be a nice level for the end of wave [5] since at that level, wave [5] is 1.236 x wave [1]. Also, at this level wave v is just about equal to wave i.

If today's high does complete 5 waves up from 1039.70, then a retracement at least is due. We'll just have to monitor how it moves down to try to determine if we saw the end of minor 2 or if it was only wave (i) of [c] of minor 2, with more upside to come.

14:53 BST - SPX Update on the bearish count and 5 waves up from 1039.70

The initial decline today seems to have marked out the rally from yesterday's low as a 3 wave move. Still, it could just be part of a wave (4) correction. Here's the ending diagonal/double zig zag count (see chart 1 in yesterday's end of day update for more context):

SPX 1 min - ending diagonal or double zig zag:

If we're still in the ending diagonal, wave (4) needs to stay above the orange dotted line I showed last night which is at about 1105-ish.

If we completed a double zig zag for wave ii at yesterday's high, we need to get down below 1101.53 (for starters) in a clear impulse wave.

On the count for 5 waves up from 1039.70 (see chart 3 from yesterday's end of day update), if this is wave (4) of [5] of v, we need to stay above the wave (1) high at 1110.27, otherwise, the count that shows a top for wave v at yesterday's high will start to look more likely. However, taking out 1105.15 would add more weight to that possibility. Here's the close up of that:

SPX 1 min - 5 waves up from 1039.70 close up:

In my view, until we take out the levels mentioned, the risk remains to the upside.

21:20 BST - SPX End of Day Update

The ending diagonals I was watching on Friday were invalidated with today's gap up, but a new one emerged, along with the possibility that we completed a double zig zag from 1039.70 at today's high or that we completed 5 waves up from that low at today's high. 


A diagonal from 1040.88 or a double zig zag up from 1039.70 would be wave [C] of ii on the [i]-[ii]-i-ii bearish count. Five waves up from 1039.70  would be all or part of wave [c] of a zig zag on the count that has us in minor 2 up. A diagonal or 5 waves up would represent the next impulse up in larger rallies on the more bullish counts under Option 4.

For the bigger picture on those bullish counts and the bearish counts please refer to the 60 min counts page.

The action since the last posts today showing the potential wave counts hasn't done anything yet to confirm which may be playing out, so I'll just show the charts with updated labels to take account of the action since the earlier posts:


Chart 1: SPX 1 min - ending diagonal from 1040.88 or double zig zag from 1039.70:

This shows the whole of the move up from 1040.88 as an ending diagonal in progress for wave [C] of ii or a complete double zig zag up from 1039.70 to complete wave ii.

For the ending diagonal, if we completed wave (3) today, wave (4) needs to stay above the dotted orange line (otherwise the lines will not be converging), assuming we didn't complete it today.

On the more bullish counts, this diagonal would be a leading diagonal for a wave (i) or [i] up.

If we completed wave ii at today's high with the double zig zag that I've labelled, we really need to see clear impulsive declines. As yet, we haven't seen that, so this possibility may be low odds at this stage. However, if it can stay below today's high in 3 waves (it looks like a double zig zag up from 1116.14 at the moment) and then start to decline impulsively, that would boost confidence in it.

Here's a close up showing the count from the 1101.53 low:

Chart 2: SPX 1 min - ending diagonal from 1040.88 or double zig zag from 1039.70 close up:

As you can see, the count could go either way at the moment. The move down from today's high looks better to me as a zig zag, but I can certainly squeeze 5 waves out of it for wave 1 down if did  complete wave ii today.

So far, the move up from 1116.14 looks like a double zig zag, but it could easily develop into an impulsive move. If that happens, it may be that we bottomed in wave (4) at 1116.14 and have started wave (5) up to complete the ending diagonal.

Chart 3: SPX 1 min - 5 waves up from 1039.70:

This labelling applies to the count that has us in minor 2 up from 1010.91 or the more bullish counts (under Option 4 - see the 60 min counts page).

It could be complete at today's high as you can see from the alternative labels, but price has done nothing yet to confirm it. So, for the moment, further upside to complete this 5 waves has to be assumed. If we were to take out 1110.53 before making a new high, that would suggest that we'd completed 5 waves up from 1039.70 today.

So, after today's action, here's what I'm watching:

1) for the [i]-[ii]-i-ii count, we need to stay below 1129.24. If we take that out, this count is invalidated. That means that if we are in the ending diagonal shown in chart 1 above, we need to have completed wave (3) at today's high and be in wave (4) now. Once complete we need to see a very short wave (5). Wave (4) must stay above the orange dotted line which runs through about 1105;


2) if we completed wave ii today, we need to see price action to confirm: we need to stay below today's high obviously, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we haven't seen this. Taking out 1101.53 in an impulsive move might help to increase confidence in this possibility;

3) if we take out 1129.24, that will focus attention on the bullish counts. The first bullish count (which has us in minor 2 up) shown in the update posted on Thursday  is bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it today or be on the verge of doing so, or the move up from 1039.70 could just be part of the [c] wave of 2. If we take out 1039.70 on the next move down, that would confirm the completion of wave 2 as a zig zag. It would also eliminate the two more bullish counts (although they remain potentially in play in some other form until 1010.91 is taken out).

18:38 BST - SPX update: Daily time and price chart and 60 min divergences

Well, we're certainly getting a reaction at the point where the time and price chart suggested a potential turn might occur. Here's the daily:

SPX daily time and price chart:

Obviously, we'll have to wait for the close of the daily bar to see whether or not it holds for today. All we can say at the moment is that it looks good for a reversal of some sort as we've hit a time and price target and the upper line of the channel on the time and price grid that price has moved within since the August lows (its obviously not a traditional technical analysis channel, but you can see that these grid channels have, in the past, been influential on price movement within the grid, both up and down - see the red, purple and black channels made up from the grid lines).

It may be of note that the level we've reached, 1123.87, is also within the range of a gann price level measured off the 1010.91 low. That level is about 1125. So, a confluence of these square root based price levels.

Here's the 60 min chart to show the divergences that have continued from when I posted the 60 min time and price chart showing them on Thursday:


SPX 60 min:

You'll see from the notes on the chart that despite the divergences, we need to see more in order to have more confidence in the bear case. 

Ultimately, price action must confirm a bearish interpretation of the wave count and that too hasn't yet done quite enough to confirm a bearish view. Its made a good start, but at the moment, at first glance, the decline from today's high looks like a (1)-(2)-1-2-3-4 (ignore the degrees, its just for illustration), so not quite 5 clear waves down.

Even if we see 5 waves down, it could still be part of a correction before a further push up (see the counts shown in the other charts posted today). So, with 5 waves down, we really also need to take out some meaningful price levels. 

For example, taking out 1110.27 would provide good reason to conclude that we're not seeing 5 waves up from 1101.53 (see the close up of the zig zag count posted earlier). That would be fine since I can label wave iv as a small triangle ending at the 1108.56 low, followed by a large ending diagonal up from there.

Taking out 1101.53 would suggest that the ending diagonal shown in the updates on the [i]-[ii]-i-ii count posted earlier is invalid, leaving the complete [W]-[X]-[Y] wave ii complete at today's high.

So, while the daily time and price chart may suggest a turn is likely in this area, we haven't yet seen price confirm a turn down or that any such turn down means that a significant top is in. More clearly impulsive downward movement and the breaking of significant price levels as described above would provide more confidence in a bearish view.

16:32 BST - SPX Update on the single zig zag count for minor 2

For the single zig zag count, here's a closer look at the 5 waves up from the August lows that would be all or part of wave [c] of minor 2:

SPX 1 min - close up of the single zig zag from the August lows:

As I said in my earlier post, if we take out 1129.24, this count will become the best count for the bear case, especially as it may be that any high above 1129.24 could be the whole of wave [c] of minor 2, which would likely be the end of minor 2 (in terms of time, wave 2 would be just more than 1 x wave 1).

16:12 BST - SPX 1 min: close up on the bearish count

Following on from my last post, here's an even closer look, in relation to the [i]-[ii]-i-ii count,  at wave (3) of the ending diagonal or wave [Y]:

SPX 1 min - from 10 September:

If its the end of wave ii then we're going to have to see a swift drop. Anything else will mean the risk of further upside in the ending diagonal or something more bullish remains.

15:59 BST - SPX Update on the bearish case

There's not much room left on the bearish [i]-[ii]-i-ii count as you can see from this 10 min chart which shows two ways to count the move up from 1039.70:

SPX 10 min - [i]-[ii]-i-ii down from 1219.80:

The re-jigged ending diagonal count still has another up and down move to come - obviously, the up part of that would have to be very limited since it has to stay below 1129.24.

The [W]-[X]-[Y] for wave ii can be counted as complete now (or pretty much so), but unless we see some strong downside action, the likelihood of a continued push up is high.

Here's a closer look at this count:

SPX 1 min - [i]-[ii]-i-ii zooming in from August low:

If we take out 1129.24, the best count for the bear case is the single zig zag from 1010.91 for minor 2 as shown on this chart:

SPX 60 min - single zig zag from 1010.91:

If we do take out 1129.24, I'd be very tempted to count that as the whole of wave [c] of minor 2, but we'd really have to wait and see the manner of the next decline.

11:44 BST - Dollar Update

Following on from my last post on the dollar (which you can read here), assuming we have seen wave [1]  of i of (iii) up from the low at 81.876,  the risk of further downside in wave [2] played out. We've now retraced just over 78.6% of the wave [1] rally. Its possible to count a complete correction at today's low. Here's how I can label it:

Dollar 60 min:

Its interesting that we bounced off the lower line of the correction channel for wave (ii). On a smaller time frame, its possible to count 5 waves within C of (Y) at the low of 82.055, but its also possible to count it as being now only in the 4th wave, with one more low to come. If there is another low to come, then it obviously has to stay above the low at 81.876, otherwise this count is invalidated and, as pointed out in the last update, it will appear that wave (ii) is continuing to lower levels - the 61.8% or 78.6% retracement of wave (i).

I've drawn in a new base channel, assuming we've seen the low of wave [2]. If going long, you wouldn't really want to see this channel broken to the downside, although false breaks can, of course, occur. Still, if I wanted minimal risk, I'd use a break of the channel as a signal to exit a long. Technically, however, the level at which to stand aside would be below 81.876.

Once again, if we've bottomed in wave [2], then we'd have to see price  behave in a manner that is consistent with wave [3] up. As long as it fails to do so (like the 3 wave rallies it was putting in following my last post), the risk of further downside remains. While that may be limited if we're in wave [2], its potentially alot greater if we're actually still in wave (ii), so sensible stops are, as always, vital.

 

11:39 BST - S&P 500 percent of stock above the 50ma and CBOE Equit Options Put/Call Ratio could be approaching sell signals

The S&P 500 percent of stocks above their 50 day ma gave a good buy signal on 31 August when it crossed back above its 13 ma  which, as I said in the post of 20 August, is what was needed for a buy signal.  Its is now in the area where it and the market topped out in early August:

S&P 500 percent of stocks above 50ma:

The line hasn't turned down yet, but its has the potential to double top here. However, the sell signal won't officially come until it crosses back below the 13ma. At the moment, that's still rising. While its above the 13ma, the risk is to the upside and there's alot of room for the line to move up into the area between the red lines if things get really bullish.

So, for the moment, this chart is telling me just to be on the look out for a potential top. In my view, it would be more favourable to the bear case if this line tops out under the red zone rather than pushing back into it. It generally seems to get into that zone in strong uptrends. Once it falls back, if the bearish case is playing out, I'd like to see it get down into the green zone before it turns back up. On the last decline into the end of August, it turned up above that zone which suggested that things were not quite bearish enough for a sustained market decline at that stage.

The CBOE Equity Options Put/Call Ratio is on the verge of giving a sell signal with the 5 and 10 day moving averages turning up. They haven't quite crossed yet - they closed at the same price on Friday:

CBOE Equity Options Put/Call Ratio:

Also, while they're below that blue dotted line, there's always the risk that they just chop around over and under it and criss-crossing each other while the market chops upwards like that August/October 2009 period highlighted in green, to which I've referred in earlier posts on this chart. So, while the 5ma may cross above the 10ma giving a sell signal, its important to realise that the signal could be quickly reversed, so trades taken on this signal while the averages are below the blue dotted line need to be managed accordingly.

You'll see that since I last posted this chart on 20 August (see here) I've added two channels to the red one that I originally drew on the chart back in June (see the 25 June post).

If the moving averages were to start moving up within the steeper black channel, that would suggest an acceleration in the market to the downside (an upward sloping channel is bearish for the market). Really, however, for the bear case, it would be more than satisfactory for the averages  (particularly the 10ma) to stay within the upper half of the red channel.

The downward sloping pink channel (which is bullish for the market) may be just be a normal downward swing in an overall uptrend, but its something to watch. If it becomes the dominant channel and leads these moving averages down and out of the black and/or red channels, that's going to suggest that the markets are in a sustainable uptrend.

At the moment, the pink channel looks like a bear flag that should break to the upside, which would be bearish for the market. But I don't think anything can be take for granted at this stage. The markets are clearly poised to move in either direction, even though a near term top may be in at Friday's high or not too far away (see Friday's end of day update showing the elliott wave counts for the bearish case and the update to which it refers for the elliott wave counts for the bullish case - both suggest a top of some sort should be in or near). The way it drops and to what level should give some clue as to whether its the bullish or bearish case that's playing out.

On this chart, if the next pullback in the market results in a convincing break above the pink channel which is not reversed, the bearish case will stand a good chance. Ideally, I'd like to see the next pullback in the market push the averages above the mid line of the red channel and for them to stay above that mid line. 

If, on the next pullback in the market, the pink channel isn't broken significantly to the upside or any such break is quickly reversed and the moving averages just continue trending down, then that's going to favour the bullish case for the market.

19:58 BST - SPX Update on the ending diagonal from 1040.88

Could this be it for the ending diagonal?

SPX 1 min - ending diagonal complete - take two:

Taking out the low at 1105.15 would greatly increase the odds that this ending diagonal is over, but the low I remain focused on is 1101.53. As explained in the earlier update showing the alternate ending diagonal count  (click here), I think until then, that 5th wave ending diagonal count gives rise to the risk of continuing upside.

19:04 BST - SPX update on the bearish count

The count that had us complete an ending diagonal at today's high (see the earlier post here) is looking a bit ropey at the moment. Here's how I'm counting it currently, waves 1 and 2 down (this will be invalidated if we take out today's high):

SPX 1 min - ending diagonal complete at 1110.27:

However, it could just as easily be  that we haven't completed the diagonal and that its forming a second zig zag within wave (5) of the diagonal (remember that we have to stay below 1120.53 if there is more upside in the diagonal).

Alternatively, the ending diagonal 5th wave shown in the last update may be the one that's playing out, in which case, the upside is potentially greater and there is more risk of the bearish count being invalidated (with a move above 1129.24). However, if it is playing out, we'll just have to see how it develops.

I've mentioned the 1101.53 level in my previous posts today - I think that until we take that out, the bearish count is prone to further upside.

17:38 BST - SPX Update: Alternative to the complete ending diagonal

On the bullish counts (see the update on the bullish counts posted yesterday), although the move up from 1040.88 can be counted as a diagonal as I've shown on the bearish counts, it would be a leading diagonal.

However, there's an alternative which could also apply to the [C] wave on the bearish count, which has us currently in an ending diagonal 5th wave in the 5 wave move off 1040.88. Here it is shown on the count that has us in a zig zag up from 1010.91 (see chart 1 in the update referred to above):

SPX 1 min - ending diagonal 5th wave still in progress:

I've labelled it as if wave (3) is still in progress, but  it may not be. Either way, if we take out the low at 1101.53, this diagonal is ruled out.

16:58 BST - SPX Update on the bearish count

We could have a top for the bearish count, but I think we need to see the wave (4) low get taken out. That's down at 1101.53:

SPX 1 min - Ending diagonal [C] of ii complete?

15:39 BST - SPX Update on the bearish count

Well, that didn't take long! Now, if this count is right, we have to stay below 1120.53 in this wave (5):

SPX 1 min - ending diagonal for wave [C] of ii: 

15:27 BST - SPX Update on the bearish count

This is how I'm counting the move from the 1109.92 high which I labelled as the top of wave ii on the bearish count (see yesterday's end of day update):

SPX 1 min close up from 1109.92 high:

The alternative labelling on this chart relates to the bullish counts which you can see in the update I posted on those counts yesterday.

On the bearish counts, there's not a great deal of room left for this count - its invalidated above 1109.92.

If that high is taken out, it would mean that wave ii is continuing higher, but as I said in yesterday's end of day update, there's not much room for a larger impulse wave up before this [i]-[ii]-i-ii count gets invalidated. So, for the bearish count, I'd have to look at wave [C] as possibly forming an ending diagonal as I've sketched in on the following chart with the orange lines:

SPX 1 min - ending diagonal for [C] of ii:

If its an ending diaginal, I'd have us in wave (5) and as you can see from the note on the chart, that wave must stay below 1120.53 in order to comply with the rules. It also has to take out the wave (3) high at 1110.27.

21:10 BST - SPX End of Day Update

For both bullish and bearish counts, I was looking for 5 waves up from the 31 August low at 1040.88. 

If you look at the update I posted earlier  on the bullish counts (you can read it by clicking here), you'll see that for the count shown in chart 1 in that update, it would be wave iii of (i) of [c] in a zig zag. For the count shown in chart 2, it would be wave (i) of [iii] up and for the count shown in chart 3, it would be wave [i] of C up.

On the bearish counts, 5 waves up from 1040.88 would complete a 2nd wave correction in an overall downtrend.

For the bigger picture on those bullish counts and the bearish counts set out below, please refer to the 60 min counts page.

You'll see from the update on the bullish counts that I posted earlier that its possible that we have now seen 5 waves up from the 1040.88 low. and I explained in that update what that means in the context of those bullish counts. 

In this update I'll only show that move in the context of the bearish counts.

Chart 1: SPX 1 min - [i]-[ii]- i-ii down from the 1129.24 high:

I've labelled 5 waves up from 1040.88 as complete at 1110.27, which would be the end of the wave ii correction.

However, on the labelling shown, I'd feel a bit more confident about this if we were to take out the low of the wave (4) triangle at 1097.23. Assuming wave (4) is correctly labelled as a triangle, that would preclude the possibility that wave (5) is subdividing.

Here's a closer look, zooming in on the move from the 1105.10 high:

Chart 2: SPX 1 min - from the 1105.10 high: 

You can see the count for 5 waves down from the 1110.27 high (I explained the truncated 5th wave in wave (5) of [C] in my earlier update). So I now have us in wave (2) up. Obviously, wave (2) can't take out the start of wave (1) at 1109.92, otherwise, this count is invalidated. 

 

If this labelling is correct, once wave (2) is complete, we should see a clear impulsive move to the downside in wave (3). If we don't see that sort of wave behaviour, it would raise questions as to whether or not this count is playing out.

So, putting together the bullish and bearish counts, the levels I'm watching are as follows:

1) for the bearish counts, we need to stay below the high at 1109.92. If that goes, it will mean that wave ii is extending higher. We'd then have to stay below the high at 1129.24 otherwise the [i]-[ii]-i-ii count will be invalidated (it could still be a [i]-[ii], however, as explained on the 60 min counts page);

2) if we take out 1129.24, that will focus attention on the bullish counts. The first bullish count shown in the update posted earlier  is bearish once wave [c] of 2 completes. If that count is in play, we would need to see impulsive downside action once wave [c] and 2 end, otherwise, focus will have to switch to the bullish counts under Option 4;

3) taking out 1097.23 before we make a new high will improve the chances of the bearish count.  However, it wouldn't be conclusive that the bearish counts are playing out since the bullish counts can easily accommodate a fall below that level in the corrective waves that they would now be in;

4) taking out 1065.21 will reduce the odds that the bullish count shown on chart 1 in the update I posted earlier is playing out;

5) taking out 1039.70  will eliminate the bullish counts as labelled. Until we take out 1010.91, however, there would still be a possibility that they are in continuing downward corrections, so didn't start their respective bullish moves at the 1040.88/1039.70 lows, but it might then be considered low probability and my focus would switch to the bearish counts.

20:54 BST - SPX - Update on the bullish counts

If we've completed 5 waves up from the August lows, on the bullish counts, we'd now be looking for at least a 4th wave pullback or a potentially deeper 2nd wave decline, depending on where you start the count for those 5 waves. The two possibilities are shown on the 60 min charts below which set out the labelling for the three bullish counts I'm following:


Chart 1: SPX 60 min - zig zag up from July low:

This chart shows wave iii of (i) complete at today's high and now puts us in wave iv of (i). Even on this chart, with wave i of (i) starting at the low at 1039.70, its possible that wave (i) completed at today's high and so we'd now be in a wave (ii) retracement. (see the 1 min chart below).  The difference is that the latter would likely retrace more of the prior up move than the former. 

For the moment, I've assumed on this chart that we're in wave iv down with a possible target at about 1083, the 38.2% retracement. So, I'd be on the look out for a 3 wave move ending in that area. 

If we are in wave iv on this count, its possible that the degree labels are one degree too low and that I should be labelling the move up from the August low as waves (i)-(ii)-(iii) and (iv) of [c] so that once we get wave (v), wave [c] would be completed and it would also be the end of minor 2 up. Certainly, if we take out 1129.24 in the 5th wave that I'm looking for on this count following the 4th wave correction, it'll be something to consider - but it would have to be confirmed by wave action, ie movement consistent with a minor wave 3 down.

Chart 2: SPX 60 min - first bullish alternate under Option 4 on the 60 min counts page: impulse up from 1010.91:

On this and the following chart, I've labelled 5 waves up from the low at 1040.88, which is where wave i and (i) on these charts started. So, on this and the following chart, I'd be looking for a 3 wave decline ending around the 50% to 61.8% retracement levels between 1075 and 1067.

For this and the following count, we have to stay above 1040.88 otherwise the labelling shown is invalid and would mean that we did not start the next waves up on these counts. However, they aren't technically invalidated completely until we take out 1010.91. Until then, we could simply still be completing their corrective waves down before starting the next leg up. 

Chart 3: SPX 60 min - second bullish alternate under Option 4 on the 60 min counts page: leading diagonal up from 1010.91:

Here's a closer look at the count on chart 1 above from the August low:

SPX 1 min - wave [c] of a zig zag from 1010.91 underway:

So, the main count on this chart is that we're in wave iv down, probably to around the 1083 area. I've labelled today's decline as wave [A] of iv, but this may need adjustment as the wave develops. 

As mentioned above and as shown by the alternate labels, it may be that we topped in wave v and (i) today (this would be in line with the labelling I showed on this chart in yesterday's end of day update), in which case, the retracement could be deeper, but I'll just wait and see what sort of move down we get - 3 waves into 1083 with a clear reversal back up would start to favour this count.

If we're in wave iv, we have to stay above the wave i high at 1065.21. If it goes below that then I'll switch to the alternate labelling.

On this count, we have to stay above 1039.70 in order not to invalidate the labelling that has us moving up in wave [c] of minor 2. Taking out that low wouldn't invalidate the overall count - that would only happen if we take out 1010.91. However, it would weaken it considerably in my view.