Live: Tuesday, May 1, 2018

5/1 – 3:35 p.m. New York time

No trades today.

5/1 – 12:45 p.m. New York time

Having exited my SPY positions on Monday, the question now is when should I get back in. The decision whether to exit was based on Elliott wave analysis. The actual timing of the move was determined by the Fisher Transform, which moved to uptrending on the daily chart.

The Fisher this morning, in a classic whipsaw, moved back to downtrending. But that is not necessarily a signal to re-enter a bear position. The decision on whether to re-enter falls back on Elliott wave analysis.

In a declining market, Elliott answers the questions, What sort of decline is it? How does it fit into bigger picture? Only after those questions are answered can I make a decision to re-enter, and then time the re-entry itself with the Fisher Transform.

(The discussion that follows is pure Elliott. Readers unfamiliar with the analytical technique can find overviews in Wikipedia, Investopedia and  StockCharts. The leading practitioners of Elliott wave analysis are at Robert Prechter’s Elliott Wave International. The principle textbook is The Elliott Wave Principle: A Key to Market Behavior.)

My goal is to trade the Minuette degree identified through Elliott wave analysis. By convention, it is identified on the chart by lower-case roman numerals and letters enclosed by parentheses. The next higher degree, Minor, completed its 2nd wave correction to the upside on April 18, and is now working through a 3rd wave to the downside within the chart’s larger downtrends.

In other words, it’s a bear market, and has been since Jan. 26. The Minor degree is in a motive wave to the downside, and that means a five-wave pattern, 1, 3 and 5 in the direction of the trend, and 2 and 4 as counter-trend corrections.That means I play the 1st, 3rd and 5th waves to the downside at the Minuette degree.

The Minuette 3rd wave ended on April 25. I didn’t recognize the end of the 3rd wave quickly enough when the present 4th wave began, and so ended up riding the A-wave of the 4th for much of its upward journey. Difficulty in recognizing transitions is a continual challenge in Elliott. There are no bells or sirens to mark the end of a wave, and often the change attains clarity only in retrospect.

Corrections in Elliott are three-wave patterns (A-B-C) and sometimes chains of triplicities. That suggests that the Minuette 4th wave continues, with the present decline being a B-wave counter-trend correction within the Minuette 4th.

Since I’m playing the Minuette degree, my proper course of action is to wait for the 4th wave to complete its run, and then trade the Minuette 5th wave to the downside.

The next movement will be a C-wave to upside. After that, things get ambiguous. Does the ensuing decline signal the beginning of the Minuette 5th wave? Or is it a continuation of a complex series of triple-wave patterns. I shall consider that question once it begins.

Elliott wave analysis is in many ways like a doctor’s diagnosis: There are rules and guidelines aplenty, but the variations within how each pattern plays out makes analysis of the current status tentative.

One rule is that the present B-wave to the downside cannot move past the beginning of the preceding A wave. That would be $260.85 on SPY, attained on April 25. If the present B wave moves below that level, then I shall need to reanalyze the chart to account for the new information.

Here is a 15-day chart, with 10-minute bars and my current wave count, captured at 9:38 a.m. on May 1.


By Tim Bovee, Portland, Oregon, May 1, 2018

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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