11:45 BST - FTSE Update

If FTSE put in an important top in April, its going to have to start dropping pretty much now. Here's an updated count showing how the move since the April high may be counted - the main labelling is the bearish view, with the alternate labelling showing the bullish view:

FTSE Daily:

So far, wave [ii] on the bearish count has just exceeded a 78.6% retracement of wave [i] down.

You can see that I've labelled the move up from 5070.94 as a diagonal. On the bearish count, its an  ending diagonal for wave c of (y) of [ii]. On the bullish count it would be a leading diagonal, so it can't be wave 3, so it would have to be wave [i] of 3 - that's very bullish and means that this bullish count, on this labelling, won't be invalidated unless we drop below 5070.94.

Here's a closer look:

FTSE 60 min:

This shows only the bearish count, but the following comment on the diagonal applies equally to the bullish count.  I've labelled the diagonal from 5070.94 as complete, but we may still be in wave [5]. It can't exceed 5833.1 if its to remain shorter than wave [3] as required by the rules. In theory, wave [5] could, therefore, reach its maximum level and still not eliminate the bearish count since the April high is 5833.73.

Here's an even closer look:

FTSE 5 min:

Again, I've only labelled the bearish count. 

It looks like a diagonal down from the high at 5761.93, although I could just as easily label it as an impulse down to where I have wave (1) of the diagonal, followed by an expanded flat wave (2), with today's rally being the C wave of wave (2).

If we take out the high labelled [ii], that would mean that the diagonal is still in progress or something more bullish is developing.

Taking out the wave [4] low of the diagonal at 5597.46 would mean that the diagonal is complete on this labelleing, though it won't seal the bear case since even on the bullish count, a pullback (in wave [ii] of 3) is called for. As mentioned above, we'd really have to drop below 5070.94 to start thinking that the bullish case may not be viable.

So, taking out 5770.92 would suggest more potential upside and the bullish case might then be the focus. However, the bear case isn't invalidated unless we take out 5833.73. Taking out 5833.1 invalidates the diagonal from the 5070.94 low and would increase the likelihood that the bullish count is playing out. Dropping below 5597.46 would suggest we could see more downside, but it may only be a corrective wave [ii] on the bullish count. We'd have to drop below 5070.94 to rule that out. Dropping below today's low at 5680.43 would be a the first step in a larger down move.

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.

14:43 BST - FTSE Update

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

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

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

FTSE Daily price and time with gann fans:

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

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

FTSE Daily price and time from February low:

Finally, some fibonacci stuff:

FTSE Daily retacement of April to July decline:

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

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

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

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

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.

11:33 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.