10:28 BST - SPX - 60 min time and price chart

I've continued to watch this 60 min time and price chart with interest:

SPX 60 min time and price chart:

When I posted it on Tuesday (see here) I noted how price had crawled up the mid line of the channel after the big gap up on Friday, fallen away from it and then tried to get back to it but failed, suggesting some weakness.

You can see that following this, we saw price drop out of the channel, but it then did what I didn't want to see it do if we had seen a top to the rally from the August low - it got back into the channel and we duly made a new high.

However, its interesting that we didn't get near the mid line of the channel with this new high at 1150 and after making that high, we fell back out of the channel and then spent most of yesterday crawling up the lower line of the channel, trying to get back within it. The failure to do so continues to suggest weakness and, as you can see, we continue to see the indicators seemingly confirming this weakness.

Also of interest is the striking similarity between the current move and the move into the early August high - I've highlighted the two areas in yellow. The current move seems to be a smaller version of the August top. Well, this is interesting but probably has no predictive value. Just thought I'd point it out.

Still, the current move, is displaying the same indicator divergences that we saw into the August top, so may be indicative of a topping process going on.

None of this precludes further highs, so we just have to continue to watch price action and look for confirmation in the indicators. I explained in the previous post what I would want to see in price and indicator action to provide a degree of confidence that some sort of top has been put in. Although we closed below the channel yesterday, I don't think it can yet be considered as a significant breach. We need now to see downside follow through if a top has been put in.

However, if price gets back into the channel, then its going to be a warning that we may see further highs before this rally is over. It could be limited if price again fails to make it to the mid line of the channel, so it would be sensible to monitor any move back into the channel to try to gauge the strength of the move. 

As I pointed out prior to Friday's move, price could move up into the next Gann price levels (1156 then 1170) by just crawling up the mid ine (or, indeed, the lower line) of the channel. If that's what it does, again, I'd be looking at that as a sign of weakness.

Of course, if it gets back into the channel and then gets above the mid line, then all short bets should be off.

 

8:22 BST - SPX Update: 60 min time and price chart - early signs of a top, but price and indicators now need to confirm

When I last posted this time and price chart, SPX had broken down into the lower half of the price channel for the first time since the rally that started at the end of August - see last Thursday's post here. To me, this  was an inital sign of weakness creeping into the rally. 

It actually broke down out of the channel at the end of Thursday, though didn't close outside of it. As you can see from the updated chart, Friday's rally took it back up to the mid line of the channel and it duly spent the rest of the day crawling along the underside of the mid line, which was a possibility I mentioned in that post. An inability to get over the mid line would, as I mentioned, also be a sign of potential weakness, perhaps suggesting that an end to the rally would be close:

SPX 60 min time and price chart:

Yesterday, it fell away from the mid line and the rally into the day's high failed to reach it. This looks bearish, coupled with the divergences that I've marked in the indicators between the high in price made on Friday and yesterday's high (along with the larger divergences between yesterday's high and that of 21 Sept).

Still, the RSI and CCI continue to remain at bullish (to neutral in the case of RSI) levels. If we've seen the end of the rally from the August low then I want to see these indicators turn decisively bearish along with a significant decline in price. For RSI that means falling to the 30 level. For CCI that means falling at least to the zero line, but better still, below it and towards the -100 line.

The MACD histogram has turmed slightly negative which means that the MACD itself has had a bearish cross. However, the latter is still above the zero line. It needs to drop below that line to confirm any bearish move in price.

The stochastic has had a bearish cross, but remains in the overbought zone. We need to see it fall quickly to the 50 line at least, with a good decline in price.

You can see that we're coming into the next time line today, so it would be a good area for price to confirm a top to the rally from the August low, even though it has not quite hit the next price level at 1156. If we have seen a top, then price should fall decisively below the channel and not be able to recover it and we should start seeing the downward price levels (in red) get hit. Moves in the indicators as described above that accompany such a price move would help confirm that perhaps a top to the rally is in.

If we don't see all or any of the above, then it'll be a warning to be prepared for more upside. In particular, I don't want to see price decline but the indicators fail to reach their respective bearish/oversold levels, or price go sideways, but the indicators reach their respective bearish/oversold levels. Those combinations of price/indicator behaviour would be potentially bullish in my view. And, of course, if the channel gets broken to the downside, I don't want to see price recover back inside it.

17:35 BST - SPX Update: 60 min time and price chart

Just looking at the 60 min time and price chart, it doesn't seem to be over for the immediately bearish case - well, not just yet. Although the rally from today's low has appeared pretty strong, we're still in the lower half of the channel drawn through the time and price lines and below the last Gann price level that price broke down from yesterday (its at about 1138):

SPX 60 min time and price chart:

Now, on the bullish count, it doesn't mean that we won't just continue to crawl up the underside of the midline of the channel to make wave [5], but if it does that, it would probably be a clue that such a rally is likely terminal.

So far, the indicators don't seem overly impressed with the move from the low. The RSI and CCI look like they're just retesting the 50 and +100 lines from which they broke down. The MACD may be turning up, but if so, its doing it very slowly. The histogram is making higher lows within the current trough but is yet to turn positive. The stochastic has moved up from oversold, but hasn't, so far, been able to reach the 50 line.

Of course, all of this can change and the indicators can start behaving more bullishly if we just continue to rally. So, we can only watch the price levels that the move so far suggests should be important to the bullish or bearish counts and wait for price action to confirm which of the two is playing out. On my counts (see the last post) I'm watching 1127.66 and, of course, taking out the high at 1144.38 will void my bearish count.

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.

12:06 BST - SPX Update: Equity Put/Call Ratio, Percent of Stocks above the 50ma and the 60 min time and price chart - lining up for sell signals

The CBOE Equity Put/Call ratio is once again, on the verge of giving a sell signal by the 5ma moving above the 10ma. There hasn't yet been a cross of the 5ma above the 10ma - they closed yesterday at the same level - exactly as they did on 10 September (see my post of 12 September). Then, no signal came as the 5ma dropped below the 10ma and they both stayed below the blue dotted line. Here's the updated chart:

CBOE Equity Put/Call ratio:

As I've mentioned before and reiterated in the 12 September post, we may get the cross of the 5ma above the 10ma and that can be taken as a sell signal, but while these moving averges are below the blue dotted line, there is always a higher risk of false signals, so trade management must take that into account.

There are however, features that might provide some support for a sell signal here. 

First, while the market has risen, the moving averages have stayed within the pink channel, which is presently a smaller downward channel (bullish for the market) within a larger upward channel (bearish for the market). The pink channel looks like a bull flag which should break to the upside (which is bearish for the market). The black channel was broken, but that may just need to be re-drawn. Importantly, so far, the red channel remains intact.

Second, the 5ma has formed a double bottom - you'll see that the 5ma made a triple bottom in early August (see the last vertical red dotted line marking the 9 August market high) and we then saw quite a substantial decline in the market.

Third, there is good divergence in the McLellan Oscillator which made a lower high while the market moved to a higher high. We didn't have this on 10 September (you'll see that we did have such divergence coupled with a cross of the 5ma above the 10ma at the 9 August market high).

If the market has topped, we should see the 5ma cross above 10ma and both should move emphatically above the pink channel and the blue dotted line and, preferably above the mid-line of the red channel. If one or other of these does not happen, it should be considered as a warning that any down move may not be sustainable.

The S&P 500 percent of stocks above their 50ma was in an area where it could have signalled a market top when I last posted it on 12 September, but, as mentioned in that post, there was no sell signal at that time and the risk remained to the upside. 

Since then, it moved up further along with the 13ma (and the market). Its now close to giving a sell signal, but hasn't yet done so. Its reached the overbought area where market tops have occurred previously and has truned down, but hasn't yet crossed down through the 13ma:

S&P 500 Percent of Stocks above the 50ma:

Whereas on 12 September this was telling me to be on the lookout for a potential market top, I think it may now be saying to be on high alert. 

Of course, there's nothing wrong taking trades in anticipation of a sell signal being given here, based on other analysis (eg elliott wave counts or other technical indicators), as long as risk is managed appropriately - its feasible that this indicator could move up again and make a lower high, while the market moves up to a higher high - that has certainly happened at previous market tops. 

If you were only trading off this indicator however, you'd wait for the cross and,  in general, once it falls below the 13ma in this area, its been a fairly reliable sell signal. So, something to keep a close eye on.

The 60 min time and price chart that I last posted on 21 September is aligning well with the potential sell signals referred to above:

SPX 60 min time and price chart:

You can see we're right at one of the time cycle lines so, while not guaranteed, there should be a good chance of a turn around the area of this line. Certainly, the longer term time cycle posted on 15 September would be consistent with a turn here and what we're seeing in the internals and indicators suggests that the turn should be down. 

However, none of these cycles can be precise turning points on every occasion, so more upside remains feasible and a turn down right now shouldn't be considered as guaranteed. Price action needs to be watched closely because sometimes, all you get is a brief pause in the prior trend and the market then continues in its original direction  (currently up) into the next cycle line.

So, looking at price action, it does seem to be behaving like it may now be struggling to make further upside to the next price level at about 1156. Once it fell below the current price level yesterday, it wasn't able to get back above it. 

It also fell below the midline of the channel (the construction of which is explained in the earlier post). Its the first time its done that since the big rally that got it into the upper part of the channel on 1 September. Obviously, this may be a false breakdown, so a quick recovery back into the upper half of the channel would potentially be bullish and we'd have to be thinking that the next price level up may be on the cards. 

However, if it fails to recover the upper half of the channel, that's going to look bearish and will suggest that the lower line of the channel may be reached and that will then open up the possibility of a breakdown out of the channel altogether.

You'll see that I've added some red dotted horizontal lines to the chart. These are Gann based price levels assuming a top at 1148.59. The first one has already been reached (it coincided with prior peaks in the market so was bound to provide support).  The lower ones may be the initial targets to watch for if we have topped and areas where price may pause. If we're only correcting an overall uptrend these levels may mark potential turning points for such a correction. If we're now entering a larger downtrend, these levels should only provide temporary support.

As for the technical indicators, while the bearish divergences did manifest themselves in lower prices yesterday, I really want to see more bearish moves in these indicators to have confidence that we will be seeing at least a reasonable pullback in the market.

The RSI needs to break the 50 level and get to oversold with price declining. The CCI needs to get to below zero and towards the -100 level with price declining. The MACD needs to fall below zero with price declining. The stochastic has reached oversold, but without too much of a sell-off in the market. If we see a market decline today, I'd like to see this indicator fall further into oversold without recovering above the oversold line.

So, the way things are lining up suggests that a top for the rally from the August low may be very near, if not already in at 1148.56. This is consistent with the wave counts, even on the overall bullish case (see yesterday's end of day update). Now we just need price to confirm with follow through to the last two day's bearish candles with a significant deline that takes out some meaningful price levels  to the downside (the ones I'm watching for the moment are set out in that end of day update).

 

22:29 BST - SPX: 60 min time and price chart

This chart shows Gann based price levels from the 1040 low with a 4 day cycle and a channel with a lower line drawn through the first cross of the time and price lines after the start point of the channel at the 1039.70 low:

SPX 60 min time and price:

Its interesting how price has found resistance and support at these price levels and how, at the 1121 level it consolidated for so long right between two of the time cycle lines before this latest rally (see the yellow highlighted areas). 

The close today was right on one of those price levels. I've marked the next level up, which is at 1156 (the one after that is about 1173, but won't fit on the chart).

Its obviously well within the realms of possibility that the market could get to the next price level. I showed in the end of day update a possible count that has us still in wave (4) of [5] of an impulse up from the August low (see the fourth chart). Today's high would have been wave B of wave (4) which is forming an expanded flat on this alternate count. So, wave (5) of [5] would follow once wave C of (4) is complete.

As mentioned in the update, if that count is playing out, we'd have to stay above the wave (1) of [5] high at 1131.47 in wave (4). As long as we do that, the risk of a further high, possibly to the next price level shown on the above chart (or the next one at 1173), remains.

You can see from the chart how well price has moved within the upper half of the channel. So, a break down into the lower half may be an indication that the rally is over. A break down out of the channel altogether would probably confirm a top of some sort is in.

The next time line on the chart is tomorrow. This coincides with two cycles I showed last week which start from the March 2000 high - see that post here.

The RSI, MACD and MACD histogram show nice divergences. The MACD and its histogram show quite a large one going back to early September. The histogram and the RSI show nice divergences between yesterday's and today's highs. 

Its perfectly possible in light of this and the main wave counts shown, that the rally ended at today's high. However, if a top is in, we need to see the indicators move to bearish levels with a decline in price. Anything less than that (for example, the indicators fall away but price is only moving sideways) should be considered as a warning that further upside may be coming.

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.

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

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

SPX 60 min - time and price:

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

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

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

18:14 BST - SPX Update - 1 min close up bear count and 60 min time and price levels

Here's a possible count for the start of wave iii down:

SPX 1 min close up from 1105.10:

I've shown a count for a complete wave (2), but with the retracement only being 38.2% so far, further upside can't be ruled out. Neither can the possibility that we're still in wave 4 of (5) of [C] up, so yet to complete wave ii.

Its interesting that this move down today has stopped at the first Gann based price target assuming a top was made at 1104.58:

SPX 60 min Gann time and price levels:

The time cycle shown on this chart is the same as that shown on the daily chart I posted last night.

Of course, the fact that we stopped at this first Gann level based on a high at 1104.58 doesn't mean that we have topped at that high. For the moment, we just have to stay below 1104.58 for the bear case and get another 5 waves down (taking out 1087.11 to rule out the on-going wave 4 of (5) possibility).

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.

22:45 BST - SPX Update: Time and Price Resistance suggesting a turn?

Undoubtedly, the bullish case looks very appealing following last week's action so I thought I'd post something that might suggest that there should be at least a temporary halt to the advance, if it has any impact. 

I should warn you that the following charts are very busy and require a bit of effort but really, they're not that bad once you get over the initial confusion of a mass of lines. Just don't look at them with a hangover.

Both charts use Gann based techniques relating to support and resistance and time.

This first chart shows the SPX from the 26 April high within a grid I've constructed from a Gann based time cycle (vertical lines) that the market seems to have observed, and Gann derived price levels at which price has pivoted or congested (horizontal lines). I then drew diagonals crossing through, as far as possible, the points at which time and price crossed. 

The result is a grid showing potential turning points in time and/or price at the vertical or horizontal lines and/or the diagonals, including points at which two or more cross. The diagonals can also be used to mark out the path of trends:

SPX Daily - Time and Price:

You'll see that the vertical time lines have pretty much caught the turn dates - see yellow circles. It was early at the May high, but that early turn seems to have resulted from price rising up to the red dotted diagonal which price had already hit on its first attempt to recover from the intial drop from the 26 April high. That diagonal did subsequently form the upper line of the down channel that price stayed within for most of the decline to the July low.

From the July low, price moved within the diagonals highlighted in purple and from the August high, it pretty much stayed within the diagonals highlighted with the black dotted lines.

It now seems to be moving up within the channel delineated by the diagonals I've highlighted in green.

We're now at the upperline of the green channel and approaching the next time line on about 10 September. We're also approaching a point where two diagonals cross as well as one of the horizontal price lines - see the turquoise circle.

All of this together seems to suggest a reversal coming up. 

The two diagonals that cross in this area, do so at about 1113/1114 on 9 September. The diagonal that forms the upper line of the green channel crosses through the time line at about 1116 and there is the horizontal price line at about 1121. The upperline of the green channel is at about 1108 on 7 Sept and about 1110 on 8 Sept. Coupled with the time points mentioned in my update in relation to the 60 min counts page on Saturday and the update to that page itself, which suggest a possible turn date of 7 Sept, this gives a range for a turn date of between 7 and 10 Sept.

Of course, you shoudn't just short simply on this basis. You need to see some price action that confirms a potential top. For example, at the flash crash low in early May there was the gap up the next day, while at the July low, there was the large bottoming tail candle, the high of which was traded above two days later.

The reason its important to wait for price action to show a reversal is because its perfectly possible for price to just keep moving up above the upper green channel line, to the next diagonal above it, and so, widening the channel for this up move (you can see that this happened with the drop from the April high to the early May low on the way down).  

This is a risk to consider given that just above the turquoise circle you can see that on this 10 September time line there is a point where its not only crossed by a horizontal price line at 1141, but there is also a cross of two diagonals - see the green square. Potentially powerful time and price resistance if price were to get there.

This next chart uses the Gann fan with the 1x1 line drawn across the top of two pivot highs in order to find levels of future resistance. Its not the traditional method of drawing the 1x1 at a 45 degree angle, but it was effective during the uptrend in identifying support - obviously, the 1x1 lines were then drawn across two pivot lows.

There are six different fans (I've removed most of the lines associated with each which are not currently relevant - yes, it could have looked alot worse):

SPX Gann fans from 26 April:

Now, it may only take one or two fan lines to provide resistance to a move. For example, the the rally into 13 May stopped at resistance from only one fan  line drawn from the 26 April high and the high on 29 April. The rally into 21 June stopped at resistance from two different fans. 

So, with 6 different fans suggesting resistance at or not too far above where we are now - well, you'd think it would mean something, especially when coupled with the price and time resistance that we're approaching as illustrated on the first chart above.

Still, as I've tried to emphasise, its crucial to wait for a reversal signal in the form of price action and until we see that, the bullish move that was started last week must be given the benefit of the doubt.