Live: Monday, May 25, 2020

9:45 a.m. New York time

What’s happening now? The U.S. stock and options markets are closed today for the Memorial Day holiday, but the S&P 500 E-mini future contracts are trading. The index continued to rise in what I expect to be the final wave up before a significant downturn. The movement began on May 22 at 2903.75 and has peaked so far today at 2986.25.

Screen Shot 2020-05-25 at 6.41.58 AM

What does it mean? The movement has more upside in its journey. The present peak is only 2.8% above its starting point, and two comparable movements within the large upward correction that began March 22 have 7.8% and 21.2%.

What does Elliott wave theory say? The present wave up is an Intermediate C wave by my count, and they tend to be energetic. The comparables in the section above were the two other C waves that we’ve seen in compound Primary wave 2 correction to the upside.

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Live: Friday, May 22, 2020

10 a.m. New York time

What’s happening now? The E-mini S&P 500 futures continue to move sideways after peaking at 2976.25 on May 19.

What does it mean? The chart suggests that the upward correction, which began March 22, is still underway but approaching an end.

What does Elliott wave theory say? The tip off is the number of subwaves in the first wave down after the May 19 peak. It’s three waves, meaning in this context that it’s an X wave (of Intermediate degree) separating the two corrective patterns that came before with a third corrective pattern that will finally put an end to wave 2 of Primary degree. The X wave is followed by a three-wave pattern, an A wave, another sign that the correction lives on.

Screen Shot 2020-05-22 at 7.01.55 AM

What is the alternative? I see no clear alternative at this point. Let’s see what happens wave C by my count.

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Live: Thursday, May 21, 2020

11:35 a.m. New York time

What’s happening now? I will confess, the little sideways track of the E-mini S&P 500 futures, looking like a snail’s trail, has left me in analytical uncertainty. So let’s pull back to what we do know. The S&P 500 has one more push to the upside before the correction has run its course.

What does it mean? The unknown is the form the rest of the correction will take. It has already stretched out over time, and the upward push could be followed by more of the correction, or a significant decline that will drop below the starting point of the correction, 2174, on March 22. In any case, the price will remain below 3997.50, the level that saw the beginning of the crash on February 19.

Screen Shot 2020-05-21 at 8.28.00 AM

What does Elliott wave theory say? The present correction is wave 2 of Primary degree and, unusually for a 2nd wave, it has traced a combination, composed of a Zigzag followed by a Flat. Completion of the present wave C of Intermediate degree will either mark the end of Primary 2, which means the start of Primary 3 and powerful decline, or extend the correction with yet another corrective pattern, which means more upside. Can’t say which at this point.

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Live: Wednesday, May 20, 2020

10 a.m. New York time

What’s happening now? My focus today is be on the rise of the S&P 500 from May 14 that may have ended on May 19. For a broader view, see Tuesday’s Live post.

What does it mean? The internal count of the rise from May 14 shows that it has traced the minimum steps required for me to declare it complete. That assessment will stand as long as the price remains below the May 19 high, 2976.25.

Screen Shot 2020-05-20 at 6.34.22 AM

What does Elliott wave theory say? The rise from May 14 to May 19 is a C wave of Intermediate degree, with five subwaves, suggesting that the next move will be down.

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Live: Tuesday, May 19, 2020

10:40 a.m. New York time

What’s happening now? The S&P 500 overnight reached a new high, 2976.25, in its correction of the decline that began February 19, pushing 12 points above the prior high, set on April 30, at 2965. The index has so far retraced the decline from February 19 to just beyond the Fibonacci 38.2% level.

Screen Shot 2020-05-19 at 7.37.28 AM

What does it mean? The movement demands a revision of my analysis of the chart. I had concluded the correction was over and a new downward movement had begun. As it turns out, that’s no longer tenable.

What does Elliott wave theory say? The prior count had the Primary wave 2 upward correction ending and Primary 3 to the downside beginning on April 30. Wave 2 exceeding that point changes the analysis.

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Live: Monday, May 18, 2020

1:20 p.m. New York time

Looking forward. My next options vehicle will be the monthlies expiring July 17. The entry date, 45 days prior to expiration, is June 2. In line with my decision to space entries within a two-week period centered on that date, I’ll be looking to open new positions between May 26 and June 9. The JUL20 series has a management date, 21 days prior to expiration, on June 26. That’s the day that I exit all profitable positions.

Buying in will require a clear decline into the early stages of the S&P 500 into Intermediate wave 1. At present, there is no clarity. I shall wait until Tuesday before doing an analysis, but suffice it to say that today’s price rise, peaking at 2952.75 so far, strongly suggests at Minor wave 4 within Intermediate 1 is still underway, which was my alternative reading of the chart.

9:40 a.m. New York time

Two Futures. Before looking at today’s chart, I’d like to take a step back to put our present decline in context.

Screen Shot 2020-05-18 at 6.10.28 AM

The furthest back I can go with my charting of the market blue chips is the Dow Jones Industrial average back 118 years, to 1902. The chart uses quarterly bars.

Two takeaways:

  1. No other market crash comes close to equalling the Crash of ’29, which announced the start of the Great Depression and hit bottom in 1932. Remember the crash of 1987? When the Dow went down 25% one day? Chickenfeed. Even our present Coronavirus Crash is fairly insignificant in comparison.
  2. On the chart, we’ve been in a bull market since 1932. The market fluctuates, but the trend has been up. In terms of Elliott wave theory, I can count five waves up: wave 1 from 1932 to 1937; wave 2, 1937 to 1942; wave 3, 1942 to 1966; wave 4, 1966 to 1974; and an extended wave 5 from 1974 to the present.

So two futures: If the Coronavirus Crash signals the end of wave 5, then our present decline will correct the rise from 1932. That’s a very large decline. Or, if our present crash turns out to be a lower level correction within an ongoing wave 5, then the bull market will return, tentatively at first, and then with a great deal of energy.

It will be quite some time before anyone can say with confidence which of those two futures we’ll experience.

What’s happening now? A short term correction continues on the S&P 500 chart, for a second breaking above the channel of the decline that began February 19.

Screen Shot 2020-05-18 at 6.33.19 AM

What does it mean? Bear markets have their downs and ups, and we are presently in one of the ups. My trading tends to rely on movements of larger scale. The present upward correction will be followed by a powerful downtrend.

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My May Options Losses: Lessons Learned

“April is the cruelest month”, wrote the poet T.S. Eliot.

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He was wrong, at least in this season of our discontent, cruel pandemic prompting cruel opportunities for bear trades that, in their May denouements, left the stage with cruel losses trailing like bloodstains in their wake. March was a month of hope. April was a month of diminishing expectations. May was the cruel month when hope shriveled to a parody.

I entered the three options positions mere hours before they reversed to the upside, became hugely unprofitable and never returned to that sweet shore of profitability.

Was it a whipsaw for the record books? A black swan that defied anticipation? A failure of R.N. Elliott (no relation to the poet) to anticipate Elliott waves so lacking in clarity that they defied the trader’s ability to count?

It is my practice, after a major loss, to try to understand what I can learn from it, to become a better trader and, I should hope, avoid being caught in the same trap again.

Mind Meld

The mindset of the trader is the most important element of trading. Here’s where my head was when I entered the May options positions and how I reached that point.

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Live: Friday, May 15, 2020

2 p.m. New York time

I’ve repositioned some of the funds freed by the exit of my options positions into share positions in SDS, an exchange-traded fund that does the opposite of the S&P 500, and then multiplies each movement by two. The prices were $23.66, $23.67 and $23.69 for the three lots.

11:55 a.m. New York time

I’ve exited my short bear call spread options positions on SPY, for significant losses. The Subminuette B wave turned up without moving below the end of Subminuette A, greatly reducing the likelihood that the price would collapse into my zone of profit on the options. C waves, like that I count as beginning from 2809.50, have a lot of energy, and that would have raised the cost of exiting prior to expiration after the bell. The alternative would have been to allow the positions to expire, which would have put shares of stock in my account, and any significant moves over the weekend would have had a potentially devastating impact on my holdings. The odds of a significant move are totally unknown, so in common with the saying, “Risk as good, as long you know the odds”,  I avoided the risk in favor of a slightly more expensive cost of existing. I hate not knowing the odds, so I consider to be a good decision.

Record-keeping: I shall up the analyses for the three lots of options — lots 12, 13 and 14 — over the weekend, along with an analysis of lessons learned from the loss. My long shares of the inverse S&P 500 fund SDS, which are of course have no expiration, remain in my accounts, and I shall hold them until Primary wave 3 nears its end, exit for the 4th wave correction, and then assess my next move once Primary wave 5 begins.

10:55 a.m. New York time

What’s happening now? The May monthly options expire after the closing bell. For bear traders who opened positions in late March, the normal schedule, before the upward movement, the timing is terrible. On the chart, the low-level upward correction of the S&P 500 that began May 1 continues, or perhaps is complete, having peaked at 2350 in the wee hours of the morning before the opening bell. It’s impossible to say which happening at this point.

What does it mean? The rise is a normal low-level correction that I would ignore, were it not for the fact that the May monthly options expire after the closing bell today.

Screen Shot 2020-05-15 at 7.49.10 AM

What does Elliott wave theory say? At the macro level, the index is in wave 3 of Minor degree within Intermediate wave 1 within Primary wave 3, all to the downside.

At the micro level, within Minor 3, the index is in an upward correction at the Minuette degree. At the Subminuette degree, it has completed wave A to the upside in a probable Zigzag pattern and is now in Subminuette B. The B wave will have three legs at the Micro degree as it works its way down and is presently beginning the middle (B) leg. If what I’m counting as Subminuette wave B drops below the start of the wave A, at 2809.50, then it is in fact not wave B to the upside but wave C to the downside.

What is the alternative? The upward 2nd wave correction at the Primary degree could still be underway. We have yet to see a decisive commitment on the chart to the downside so the possibly remains, although I don’t consider it to be a likelihood.

My Trades, a day of reckoning: All of my short bear call spread options positions on SPY, lots 12, 13 and 14, expire with losses after the closing bell today, and I’ve got to decide what to do with them: 1) Exit the positions for a premium over my maximum loss exit, thereby getting out of further harm’s way, or 2) let them expire for maximum loss, at the cost of some work on Monday getting out of share positions, and perhaps incurring loss if there’s a big move over the weekend. My options positions need to see a price in the 2600s in order to produce a last-minute save. Not happening.

Learning and other resources. Elliott Wave International has long been the leading analytical house based on Elliott wave theory. They make available a number of free educational materials and other resources, in addition to their for-pay subscriptions.

I recommend two books, both by people associated with EWI.

First, Elliott Wave Principle by Robert Prechter and A.J. Frost is the book that, along with Prechter’s analyses, that created the revival of Elliott wave theory. I first read it in 1984, and it has had a profound influenced on my thinking about markets ever since.

Second, I’ve found Visual Guide to Elliott Wave Trading by Wayne Gorman and Jeffrey Kennedy, both of EWI, to be a useful book that relates Elliott wave theory to practical trading. The authors are hands-on Elliotticians, and for an active trader, that’s exactly what’s needed — less theory and more how-to. The first chapter of the book gives a very nice thumbnail run down of what Elliott wave theory is all about.

Terminology. Here are some links to information about some of the technical jargon I use.

Charts. On my charts, waves have a subscript showing the degree above or below the Intermediate degree. Here are the subscripts and the degree each represents:

  • {+3} Supercycle
  • {+2} Cycle
  • {+1} Primary
  • No subscript: Intermediate
  • {-1} Minor
  • {-2} Minute
  • {-3} Minuette

By Tim Bovee, Portland, Oregon, May 15, 2020

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Live: Thursday, May 14, 2020

3:45 p.m. New York time

I labelled the move up this morning as Minor degree; it could just as easily be one degree lower, at Minuette. Time will tell.

1:40 p.m. New York time

Minor wave 4 to the upside began at mid-morning from a low of 2760.25, rising 69.25 points so far, or 25%.

9:45 a.m. New York time

What’s happening now? The S&P 500 is continuing its decline that began April 30 from 2965. The low so far in the movement is 2777, about 45 minutes before the opening bell.

What does it mean? The decline so far has traced has only 188 points, down 6.3%, suggesting that it has much further to go. The current leg down is only 15% of the initial decline, from February 19 through March 22, and since the second leg down tends to be the most energetic, I would think that the bear market has miles to go before it sleeps (with a nod to the poet Robert Frost).

Screen Shot 2020-05-14 at 6.39.31 AM

What does Elliott wave theory say? The index continues to be in the Minor 3rd wave within the Intermediate 1st of the Primary 3rd, making it the middle of the present leg down within the Intermediate degree. There’s no set length for the duration of a wave at any degree. The way I think it: For Intermediate, think days to weeks, and for Primary, think weeks to months. In any case, the trend is down, with my target at the Intermediate degree being below 2000.

What is the alternative? It’s possible, although just barely, that the 2nd wave of Primary degree, which began April 30, is still working out a complex pattern. A decline below 2174, the start of Primary wave 1, would invalidate the alternative.

What about my trades? My three short bear call options spread positions on SPY, Lots 12, 13 and 14, expire tomorrow, May 15. I’ll make decisions today and tomorrow over whether I should exit before expiration, or wait until expiration. At present exiting would cost 15% to 22% over the cost of allowing the options to be exercised at expiration, which is an argument that I should wait.

Learning and other resources. Elliott Wave International has long been the leading analytical house based on Elliott wave theory. They make available a number of free educational materials and other resources, in addition to their for-pay subscriptions.

Terminology. Here are some links to information about some of the technical jargon I use.

Charts. On my charts, waves have a subscript showing the degree above or below the Intermediate degree. Here are the subscripts and the degree each represents:

  • {+3} Supercycle
  • {+2} Cycle
  • {+1} Primary
  • No subscript: Intermediate
  • {-1} Minor
  • {-2} Minute
  • {-3} Minuette

By Tim Bovee, Portland, Oregon, May 14, 2020

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Live: Wednesday, May 13, 2020

9:55 a.m. New York time

What’s happening now? The S&P 500 dropped below 2885.25, signaling that correction that began on March 22 has reached an end and that a major long-term decline has resumed. The first leg down will carry the price to the 1900s at the least, based on the price channel.

What does it mean? The resumption of the decline that began February 19 is in its early stages. Ultimately, the decline will be with us for months, punctuated by the usual downs and ups.

Screen Shot 2020-05-13 at 6.54.34 AM

What does Elliott wave theory say? The S&P 500 is in Minor wave 3 of Intermediate wave 3 of Primary wave 1, all downtrending.

By my count the 2885.25 level was the end of Minor wave 1 in the present Intermediate wave of the correction. When that level was pierced on May 12, that signaled that wave 2 of Primary degree — an upward correction within wave 1 of Cycle degree — had ended on April 30 at 2965, thus confirming the alternative count, which became the preferred count.

Here’s are the waves of Minor degree so far within Intermediate wave 1:

  • Wave 1, began 4/30/2020 at 2965, length down 194 points, or -6.5%.
  • Wave 2, began 5/3/2020 at 2771, length up 176 points, or 6.4%.
  • Wave 3, began 5/6/2020 at 2947, at this moment down 121.75 points, or 4.1%, and certain to go down further

What is the alternative? None in sight at this point. I’m sure ambiguities will develop later and the market with disentangle them in its own time.

What about my trades? The present downtrend has three more days to bring my three short bear call options spread positions on SPY back into profitability. Lots 12, 13 and 14 all expiring on Friday, May 15. A 200 point or so drop in the S&P 500 would bring those positions back into profitability.

Learning and other resources. Elliott Wave International has long been the leading analytical house based on Elliott wave theory. They make available a number of free educational materials and other resources, in addition to their for-pay subscriptions.

Terminology. Here are some links to information about some of the technical jargon I use.

Charts. On my charts, waves have a subscript showing the degree above or below the Intermediate degree. Here are the subscripts and the degree each represents:

  • {+3} Supercycle
  • {+2} Cycle
  • {+1} Primary
  • No subscript: Intermediate
  • {-1} Minor
  • {-2} Minute
  • {-3} Minuette

By Tim Bovee, Portland, Oregon, May 13, 2020

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