11:11 BST - Dax Update

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

Dax Daily:

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

Dax Daily chart close up from April high:

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

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

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

Dax 15 min:

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

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

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

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

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

13:48 BST FTSE and Dax breakdown from time and price channels

The FTSE and Dax have broken down out of their 60 min time and price channels:

FTSE 60 min time and price chart:

Dax 60 min time and price chart:

Hopefully we're not just going to get an immediate recovery back into the channels. Assuming its a genuine breakdown, let's see if the SPX can follow suit today.

19:04 BST - Dax and FTSE update

While SPX has been moving sideways, I though I'd take a quick look at the Dax and the FTSE.

Here's the Dax daily chart (it hasn't been updated with today's action, but the close today was 6083.85):

Dax Daily: 

Last time I posted on this I was thinking we may have seen a top - see the post of the 15 min chart by clicking here - (we were in the midst of the wave I've labelled (i) in the daily chart above as it turns out).

You can see from the daily chart what looks like a nice 5 waves down from the August high (the Dax, you might recall, took out its April high, diverging against the other main indices like SPX, FTSE, etc). So, it seems like there's a good chance that a top was seen in early August.

However, looking at the 60 min chart from the August high, you can see that like SPX, it can be labelled as an impulse or as a double zig zag (see the black lines):

Dax 60 min:

If its a zig zag, it would likely be part of the (X) wave labelled as an alternaive on the daily chart. Even if its 5 waves down from the August high, it could be an [a] or [c] wave within that (X) wave correction. This would imply  further highs to come, much like the bullish alternate counts under Option 4 which I show on SPX (see the 60 min counts page and the last update on those counts).

In this respect, the Dax, which was outperforming, resulting in its August high, is now in line with SPX - right down to the ambiguity over whether its an impulse or a corrective wave down from its high.

The FTSE caught my eye because its getting so close to it recent high at 5418.58. 

Last time I looked at it,  it seemed like we were topping if we hadn't already done so - see the last post here. In fact, we went on to make a slightly higher high at 5418.58 on 9 August. I can still count that into a nice top with the same labelling shown on the chart in that last post.

The only problem is that the price action since that high isn't easy to count as 5 waves down. Furthermore, the move up from the  low made on 25 August is not that far off the 9 August high.  

I'm starting to think that maybe FTSE hasn't quite finished the wave [ii] correction labelled on the chart in the previous.

So, here's a possible count to accommodate a further push up to complete wave [ii] (this daily chart hasn't been updated with today's action, but FTSE closed at 5371.04):

FTSE daily:

You'll note the alternative count shown on this chart, which would mean that the July low could have been the start of a major move up in the FTSE, again, in line with the bullish alternate counts under Option 4 for SPX.

Here's the 60 min chart showing the main count in close up from the 5418.45 high:

FTSE 60 min:

You can see that the move down from that high doesn't look like an impulse. It can be counted as such, but it wouldn't be very pretty, as you can see from the alternate labelling. At first look, it could be a leading diagonal, but on closer examination, it transpires that what would be the 3rd wave of such a diagonal is shorter  than the 5th wave. 

So, this zig zag seems to be the best way to count it if we take out the 5418.45 high. If we don't take out that high, I'll have to adopt that ugly impulse count. Today's high would be a good turning point for FTSE if it did top in wave [ii] at 5418.58 - its an 88.6% retracement.

11:36 BST - Dax Update - Possible top in the Dax?

In my last post on the Dax, there seemed to be a possibility that a top could be near, although it was by no means certain. Since then, we did make another new high, as was expected under the elliott wave count, but it was not much higher than where we were at the time of that last post.

In the light of subsequent action, I've relabelled the 15 min chart to show a straight impulse wave up from the minor B wave low at 5906.04 to the current high at 6386.97. Please refer to the previous post for the daily charts and a wider view of the 15 min chart - the one below zooms in to look at the move from the minor B low:

Dax 15 min:

You can see that from the current high at 6386.97, there appears to be 5 waves down, followed by what has to be a corrective retracement up to 6356.41 (since its now dropped below the low from which it started).

At the moment, this could just be a correction of the rally from the minor B low if wave C is extending or if the bullish alternative I referred to in the previous post is playing out, where that low is wave (X) preceding another zig zag up.  In this case, the high at 6386.97 could be  [i] of C or it could be minor A up or just [i] of A.

As I mentioned in that last post, assuming that wave B, or (X) on the bullish count, was a triangle as shown, we need to drop below the end of the triangle at 5906.04 in order to avoid the rally from there being only part of minor C on the bearish count or all or part of minor A up on the bullish count.

Until we take out that low, the risk of a larger C wave on the bearish count and the bullish count remain on the table.

Assuming we've topped, if we're in wave [3] of iii down on the bearish count, as my labelling speculates, a wave [4] of iii retracement must not end above the wave [1] of iii low at 6275.32. Taking that out on an assumed wave [4] will be a sign that this count may be wrong and that wave C is extending or that the bullish count may be taking hold.

If we get [4] and [5] down to complete wave iii, I'll then be watching the wave i low at 6244.69, since a wave iv retracement must not end above that level.

So, the bearish count is starting to look OK at the moment, but is not assured. We just need to keep an eye on the levels mentioned above and hopefully, doing that will keep us on the right side of things. If waves don't follow through as expected for the bearish count, that's a warning that should be heeded given that until we drop below 5096.04 on the labelling I have, there could be more upside to come, even on the bearish count and the bullish count remains very much alive.

11:32 BST - Dax Update

Following on from my post yesterday, here's an update on the Dax in the light of its new high above the April high. I've revised the bearish count to something that I think looks a little better, but it doesn't make much difference to the bearish alternative I showed yesterday in the event of a new high:

Dax Daily from March 2009:

It has us now in minor wave C of intermediate wave (Y). Here's a closer look on the daily chart:

Dax Daily from April 2010 high:

Wave C appears to be in its 3rd wave. If wave C is forming as a straight impulse, there could be alot more upside to go. If its forming an ending diagonal, the upside could be more limited.

Here it is close up on a 15 min chart from the high of the [b] wave within the triangle:

Dax 15 min from April 21 June high:

The labelling of [iv] of C is only provisional at the moment - we may still be in [iii]. If the next pullback drops below the high of wave [i], we could have seen a completed impulse up, or we may just be forming an ending diagonal. To be a valid ending diagonal, wave [iii] must not exceed 6406.79.

The position of the peak in the MACD shown by the vertical blue line, may indicate that where I have wave [iii] labelled is the correct position, but we'll have to wait and see.

With the trend still firmly up on this index, the safest short opportunity would be once we see an impulsive 5 wave decline followed by a 3 wave pullback. Until then, the risk of higher highs remains and will likely do so in fact until the B wave low at 5906.04 is taken out. Obviously, if we are in the alternate count shown, that is much more bullish than the main count, and that alternate remains viable until 5906.04 is taken out, assuming wave (X) was a triangle.

13:30 BST - DAX Update

I'm starting to prefer this count for the bearish view on the Dax, which puts us in a [i]-[ii] down from the April high, rather than having us in wave [iii] down as I showed when I last looked at the DAX:

DAX Daily - from April 2010 high:

So, I would count all of the sideways action since the May low as a wave (x) triangle. We would now be in wave (y), which will be a 3 wave affair. You can already see a 3 wave outline on the daily chart, so wave (y) may be just about done. Obviously, it can't take out the 6341.52 high if it does have more upside to go. 

If we do exceed that 6341.52 high, then the bullish count comes into play and the rally from the 20 July low would be the start of minor wave A up in another zig zag.

However, taking out the April high doesn't leave only the bullish count. Here's the daily chart from March 2009:

Dax Daily chart from March 2009:

You'll see from the April high I've labelled another alternative. It makes the April high wave (a) of [v] within the expanding diagonal for minor C of the second zig zag up from the March 2009 low. If this is playing out then we'd need to see 5 waves up from the 20 July low, rather than the three we currently have, so there could still be more upside. Having said that, the alternative count for wave [c] of C could easily be a (w)-(x)-(y), in which case, the 3 waves up from 20 July that we can already see may be just about enough to complete wave [v].

Obviously, the DAX is closer to its April high than any of the other main indices I follow. I've explained before why a new high in the Dax doesn't preclude the bearish count on those other indices, so just because it makes a new high does not mean that those others are bound to follow.

Having said that, we can't preclude the possibility that the Dax is leading the way back up, especially since the bullish counts I have (see Options 4 and 5 on the 60 min counts page and long term counts 3 and 5 on the Long Term Counts page) all remain viable at this stage.

Still, if the Dax alone takes out its April high, the odds would suggest its lagging  to the downside, rather than leading to the upside, perhaps in a repeat of the 2007 top. We'll just have to keep a close eye on the important levels on the main indices. At some point, the picture will clear up - at least that's the hope.

 

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.

11:24 BST - DAX Update

The Dax has been the more resilient of the major world indices over recent weeks, but it may be on the verge of playing catch up, if the bearish counts in the other markets are playing out.

Here's the daily chart showing a count that has us in wave [iii] of minor 1 down from the high at 6341.52. I've labelled the start of wave [iii] as waves i and ii of wave (i) of [iii], which is very bearish. It may be that the waves labelled i and ii should be (i) and (ii) - this will depend on how far the next decline, if it happens, takes us:

DAX daily chart:

Here's a close up of the decline from the high marked [ii] at 6330.81, updated from my post on 29 June:

Dax 15 min chart:

It does look like its on the way to forming a nice 5 waves down from the wave ii high for wave [1] of iii, but it does have a bit more to do to complete those 5 waves.

So, the bearish count for the Dax could be gaining momentum as the Dax leads the way down, at least for today. However, we can't dismiss the bullish posibilities here, so its still worth keeping an eye on this one in case its starts to lead the way back up rather than down.

10:43 BST - DAX Update

On 24 June, the Dax looked like it might have topped in wave [ii] and started a wave [iii] down.

While the bullish possibilities mentioned in that last post still remain, here is a potentially bearish count that could mean that the Dax is about to play catch up with the other major indices:

Dax 15 min chart:

This count puts it in wave [3] of i of [iii] down as of today. I've put in a label for wave (1) of [3], but its not clear that wave (1) is finished.

Here is the count on a 60 min chart with the ichimoku overlaid, showing how the bullish picture as late as 17 June has just turned around now with all the ichimoku components below the cloud. There was a test of the underside of the cloud by the lagging line (turquoise), but, for the time being, it has failed to recapture the cloud and is headed firmly down:

Dax 60 min ichimoku:

You can see that for a time, while price tested the underside of the cloud and the turning line (blue) on 24 June, the lagging line looked like it would find support on top of the cloud (see what it was doing on 21 June - 26 periods back from the price action mentioned). However, it was unable to do so and as prices fell, it finally broke below the cloud too. Yesterday's wave [2] action in price caused a retest by the lagging line of the underside of the cloud, but today's gap down brought about a failure of that retest.

Of course, the level of 5634.64 mentioned in my last post has not been taken out, and until then (and even after that, as mentioned in my last post)  there remains the risk that this decline is just part of a correction in an on-going uptrend that will eventually take prices above the recent high.

Given the remaining risk of an eventual bullish outcome, this index needs to be watched closely as the price action develops, for early clues that this bearish count may be failing. I find that often, the ichimoku chart provides early clues of a trend change, so I'll be keeping a close eye on it. If the lagging line manages to get above the price line during any rally in prices, that may be the first warning signs (though obviously not conclusive) of a trend change and would suggest caution on the short side until it becomes apparent whether any such move will be sustained.

11:00 BST - DAX Update

Its possible that the Dax may have completed its wave [ii] high on 21 June, getting very close to the start of wave [i]. As I pointed out in my post of 22 June, the Dax made a similar deep retracement of the first wave off its July 2007 high.

Here is the daily chart for perspective on the longer term count:

Dax Daily chart:

And here is the possible count into the wave [ii] high on the 60 min chart:

Dax 60 min chart:

Taking out the low at wave a of the triangle, at 5634.64 would invalidate the alternative bullish count on the daily chart as labelled, but it would not necessarily put an end to the possibility of an [X] wave forming as a flat (given the three wave drop from the high) or a double three, in which case, the June high would be a wave X and we would now see a flat, zig zag or triangle develop for the second three. 

So, we could see near term downside which might be substantial (especially if the next leg down is a 5 for  a C wave or a zig zag ), yet we would still be in a bullish count longer term.  I think we'd need to take out the low of the first [X] wave to avoid a third zig zag.

For the bearish count, we now need a clear 5 wave decline probably at minuette degree, that takes us below the 5634.64 low. As mentioned above, that wouldn't rule out the bullish possibilities, but it would still be a start for the bearish case.

11:03 BST - DAX - A look at what its recent strength may mean for SPX

Will we see a new rally high in the Dax - if so, does it mean SPX will also make a new rally high?

The recent strength in the Dax of late has been undeniable. Yesterday it came close to invalidating the count that has it topping on 26 April 2010 along with the other major indices, as you can see from this daily chart:

DAX Daily chart:

It backed off the 26 April high and closed below the 6300 level yesterday. 

If it were to take out the 26 April high, that would put it out of snych with the bearish counts on the other major indices. In that case, the more bullish alternative marked on the chart might come into play, meaning we are in another zig zag up from the 2009 low. That would also open up the possibility that that is where we are also on SPX - I have a count for that possibility (see Option 5 on the 60 min counts page).

However, as strong as the DAX has been, it wouldn't surprise me if it does not exceed the April high, so we can still count a [i], [ii] down. As you can see from this weekly chart showing the 2007 top in the DAX,  it can have very deep 2nd wave retraces - pretty much reaching the start of the 1st wave:

DAX Weekly chart, 2007 top:

Of course, if it does get above the April high, it might just mean that the Dax is only now completing the expanding diagonal shown on the daily chart, which would be followed by significant declines, perhaps seeing it catch up with the other major indices -after all, back in 2007, it topped out in July. SPX on the other hand topped out in October, but they came back into synch after that right down to the March 2009 low. Here is a weekly chart showing these indices at the 2007 high. I've labelled the drop on each down to intermediate wave (1). You can see that by minor 2 of wave (1) down, they had got back in synch, despite the different topping dates.

SPX/DAX Comparative Chart of 2007 Top:

So, I'm not sure that a new high on the Dax, if it were to occur, would necessarily mean that we would have to start thinking that more bullish counts are also in play on SPX. Also, despite the depth of the retracement of the decline since the April high, a new high in the DAX for the rally since March 2009 is by no means certain.

9:32 BST - Dax Update

Here's the daily picture on the Dax - a possible double zig zag from March 2009.

Since its high on 26 April 2010, the Dax has been stronger than many other indices. Its most bearish count is probably a [i],[ii],(i),(ii) down from the April high, with (ii) still in progress, but possibly nearing an end.

This is how it looks on the 60 min chart:

Wave (ii) has retraced 78.6% of wave (i) down. This count will be invalidated by a move above 6276.80. It may then be that the Dax is still in wave [ii], but the invalidation point for such a count is not far above, at 6341.52. If that gets taken out, then the likelihood is that the more bullish count of a complete (X) wave at the 25 May low has now launched the Dax into a minor A of another zig zag.


Here is the 15 min chart:

The black correction channel is still containing the move off the 25 May low.

Wave (ii) could be complete at yesterday's high (it would be a slight truncation in (5) of [C] on a very close up view), but its possible we are still in 4 of (5), so another new high could still be in the works.

8.30 BST The Dax

The Dax has been strong of late. It nearly retraced the entire drop that occurred on the infamous "flash crash" in early May. But as a result, unlike most main indices that I follow, it can't be counted as 5 waves down from its high. Its either a [i],[ii],(i), ii) or a leading diagonal (but it has a long way to drop to qulaify as a leading diagonal - for its 5th wave to be longer then its 3rd wave, it needs to take out 5445 -ish - currently it is at 5930). Here is the [i],[ii],(i),(ii) count on a 60 min chart:

This is what it looks like on the 15 min chart:

The main count suggests that we should start [3] of i of (iii) down soon, but as you can see, there is an alternative that makes the recent low merely a wave x in an on going wave (ii) correction which would likely take out the recent high at 6114. I've marked a head and shoulders pattern on the chart which has a target of about 6054. If it fails now, having broken above the neckline, that would probably be very bearish.

 

Finally, an even closer look on a 5 min chart: