21:19 BST - SPX End of Day Update

There was no new high for the rally from the August lows, so on the bearish [i]-[ii]-i-ii count it remains possible that wave ii completed at yesterday's high with wave [C] of wave ii as an ending diagonal which started at 1040.88. 

However, we didn't take out 1110.27, so the possibility of a further high above 1127.36 remains on the near term bullish count (the zig zag from 1010.91 - Option 3) and the more bullish counts (the bullish alternatives under Option 4)

For the bigger picture on the bullish and the bearish counts  and the Options referred to, please go to the 60 min counts page.

Today's initial decline appeared to be a good start for the immediately bearish case. However, so far, there's been no downside follow through so  there remains doubt that an immediately bearish count is playing out.

Here are the charts:

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.

I've retained the labelling of a complete diagonal, but, given that we haven't declined significantly its possible that the high at 1127.36 was only wave (3) and that we saw wave (4) today. I've shown this as an alternative on the above chart. This would mean a further high to come, above 1127.36 to complete it.  If that's the case, wave (5) 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 closer look:

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

As you can see, I've labelled a series of ones and twos down if we assume a top at 1127.63. The invalidation point for this count is 1126.57, although a 1-2 down isn't entirely ruled out until we take out the high at 1127.36 (we'd be looking at an expanded flat for wave 2).

However, if we did top at 1127.36, we really need to start seeing more decisive downward moves without the deep and immediate retracements. It may be we're on the verge of seeing that if these ones and twos start to play out as they should. Until then, the jury's out on an immediately bearish case.

For the alternate shown, we have to take out the high at 1127.63, since wave (5) has to move beyond the end of wave (3) in a diagonal. However, on this bearish [i]-[ii]-i-ii count, we also have to stay below 1129.24. 

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, taking out that high would, in my view, make the count for a zig zag from 1010.91 the best bearish option.

Here's the count for 5 waves up from 1039.70 which would be all or part of wave [c] of the zig zag up from 1010.91 under Option 3 (and it would also apply 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:

For the moment this count for 5 waves up from the August low could be complete at 1127.36. However, the alternative labelling suggesting that we only completed wave [3] of v at the 1127.36 high remains valid since we haven't dropped  below 1110.27 (the wave [1] of v high).

If that alternate is playing out, I'd count the move up from today's low as a wave (1) leading diagonal and we'd now be in wave (3) (you can see the leading diagonal on chart 2 above where its labelled as a wave A).

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

1) for the [i]-[ii]-i-ii count, we need to stay below 1127.36 if wave ii completed at that high. 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 minor wave 2 (shown in chart 3 above) at the high of 1127.36, we need to see price action to confirm: we need to stay below that high, but we also need to see decisive and clear downside action consistent with a 3rd wave down. As yet, we still haven't seen this. Taking out 1101.53 in an impulsive move might help to increase confidence that a top of some sort has been seen, but, in my view, 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 last Thursday,  and its bearish once wave [c] of 2 completes. As you can see from the charts, we could have completed it at the 1127.36 high or be on the verge of doing so, or the move up from 1039.70 could just be wave (i) of [c]  of 2;

4) 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).

18:37 BST - SPX Update: Possible leading diagonal alternative on the bullish count

Addendum to my last post - possible leading diagonal for wave (1) of [5] on the near term bullish count - see the blue dotted line:


SPX 1 min - bullish and bearish counts - leading diagonal possibility:

 

18:22 BST - SPX Update: Bullish and bearish counts from 1127.36

Here's a close up of the move from the high of 1127.36 showing both bullish and bearish counts:

SPX 1 min - bullish and bearish counts for the move from 1127.36:

The initial move down today looks impulsive; the rally from there looks overall corrective but that doesn't rule out an impulse in development as shown by the alternative labelling.

Basically, we could go either way at the moment - the levels to watch for both counts are on the chart.

17:48 BST - SPX Update: Bearish count still valid

The bearish possibility remains valid with some label adjustments, provided we don't take out 1126.57:

SPX 1 min - bearish count:

Taking out the low at 1119.02 would be an indication that this count has a reasonable chance of playing out. At the moment we only have 3 waves up from today's low, but if its an impulse up it could be doing a series of ones and twos, so taking out that low would exclude that, as things currently stand.

Once again, though, the character of any decline is important - we need something clearly impulsive to the downside if there's any chance that we topped yesterday. Without that, the risk of further upside remains (see the alternative labelling on chart 3 in yesterday's end of day update for the possibility of another leg up to come).

16:06 BST - SPX Update: ones and twos down?

This is how I'd count today's move on the bearish case at the moment:

SPX 1 min - 1-2-i-ii down from 1127.36?:

If we take out the high at 1122.39 this is probably wrong, though the labelled count isn't invalidated unless we take out 1126.57. However, unless we see some decisive downward movement, that moves quickly and signifcantly below today's low, its more likely to be wrong. So, watch  price levels and the manner of any downward move. 

As shown on chart 3 in yesterday's end of day update, we could just be in wave [4] of v up. If today's low is that wave [4], we'd be on our way to a further high above 1127.36.

In favour of the bear case - 1122.39 was a 61.8% retrace of wave i and it was also a nice back test of the lower line of the ending diagonal shown  on chart 1 of yesterday's end of day update.

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.