Live: Friday, March 27, 2020

2:30 p.m. New York time

No trades planned today. The S&P 500 futures are down today, by about 500 points. If it continues, then that would suggest, using Elliott wave analysis, that the 4th wave to the upside is complete, and a 5th wave to the downside, in the direction of the dominant trend, had begun.

But wait. The 4th wave correction under that scenario has problems. First, it would be a zig-zag, a less likely form for a 4th wave. Second, it would be the same form as the 2nd wave; the 2nd and the 4th usually have different forms.

Screen Shot 2020-03-27 at 11.07.18 AM

 

Even more seriously, the count of the internal form of wave 4 shows a three-wave pattern — A-B-C — as is required for flat correction waves. But that’s that spike to the upside before A? The one marked with a question mark. Only by ignoring that spike could I get a valid 3-wave count within A for a flat — a sideways correction –according to the Elliott wave rules. Not ignoring it gives A a five-way count, which is proper for a zig-zag.

 

 

Here’s where the whole messy count leaves me.

  1. The 4th wave is a zig-zag, just like the 2nd, which is unusual, but not forbidden.
  2. But, the 4th wave retraced near 50%, which is quite short for a zig-zag. It’s more in line with a flat.
  3. The only way to make a flat work is to ignore the spike early on the 4th. Which is ridiculous. That would be cheating in the count on a massive scale.

If the price moves below the March 22 low, the end of the 3rd wave, then the 4th wave is complete and we’re in the 5th, and final, wave of the Intermediate level decline that began February 19.

If not, then something else is happening and it’s back to the drawing board.

I shall obsess about this all weekend. Enjoy!

By Tim Bovee, Portland, Oregon, March 27, 2020

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Live: Thursday, March 26, 2020

1:50 p.m. New York time

The upward correction of the larger downtrend continues. I anticipate no trades today.

Elliott wave analysis: The rise can be counted as placing us in a Minor C wave within an Intermediate 4th wave. The rise today has pierced the 38.2% Fibonacci retracement level, a common resistance point for 4th waves, but has not moved much beyond it. The 4th wave tends to be complex rather than simple, so I doubt that it’s over yet. If today’s rise were the end, it would make it a weak zig-zag pattern. I think that instead, it will be a sideways flat pattern, which gives us a series of waves staying above the end of the preceding 3rd wave, 2174 on the S&P 500 futures, and each terminating around the 38.2% retracement level, which is 2541.87 on the S&P 500 futures.

By Tim Bovee, Portland, Oregon, March 26, 2020

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Live: Wednesday, March 25, 2020

9:40 a.m. New York time

The upward correction is larger than it looked.

The S&P 500 moved above the end of the 1st wave of Minor degree in after-hours trading, violating a rule of Elliott wave analysis, and I have revised my wave count. I have also switched my analysis to S&P 500 futures rather than the index itself, since futures capture the after-hours trading.

In yesterday’s analysis I had counted the low of March 22, which is 2174 on the futures, as the end of wave 3 at the Minor degree, the decline that began March 13.

Screen Shot 2020-03-25 at 6.41.00 AMThat has been proven wrong. In my recount, I view that low as being the end of Minor wave 5, and the upward correction is the 4th wave of Intermediate degree — one step higher — correcting a portion of the downward move since March 3.

By the new Fibonacci analysis, the correction has paused just short of a 38.2% correction. This is a not uncommon turning point for 4th waves. Other possible turning points are 50% (2655.50) and 61.8% (2769.13).

The new wave count will be invalidated if the correction rises above 2853.29.

As I noted yesterday, a 4th wave tends to be shallower than the other corrective wave, the 2nd. They also tend to take more time, and so I would not expect an immediate continuation of the roaring downtrends we’ve seen since the crash began on February 19. However, once the 4th wave has done its work, then I expect a 5th wave of Intermediate degree to carry the market below 2174, perhaps a good distance below.

I’ve used Elliott wave analysis in my trading for nearly 40 years, and I’ve found throughout that the biggest ambiguity is deciding what degree a market movement belongs. Bigger, like the Intermediate? Or smaller, like the Minor? The market doesn’t place a you-are-here sign on the movements. Fortunately, R.N. Elliott’s method is self-correcting. If I get the degree wrong, as I did yesterday, then I’ll soon know it and can correct the analysis, as I have done today.

By Tim Bovee, Portland, Oregon, March 25, 2020

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Live: Tuesday, March 24, 2020

1:55 p.m. New York time

I read today’s chart, using Elliott wave analysis, as being the start of a 4th wave correction to the upside of the Minor degree. It is correcting the 3rd wave decline that began on March 13 at 2710.89 on the S&P 500 and ended yesterday at 2191.86, a decline of 519.03, or 19.1%.

Screen Shot 2020-03-24 at 10.52.15 AMGenerally 4th waves tend to be shallower and take longer to run their course than do 2nd waves. Both are market corrections, but they differ in form.

Currently, the price is approaching a 50% retracement. Under the wave framework, a 4th wave never moves beyond the end of the 1st wave, which in this case is 2478.86. If the present upward movement exceeds 2478.86, then I shall go back and re-analyze the chart.

No trades today. I’m hanging on to my bearish positions until there’s some clarity about this movement.

 

By Tim Bovee, Portland, Oregon, March 24, 2020

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SPY Analysis (lot 14)

SPDR S&P 500 ETF Trust (SPY)

I have entered a short bear call spread on SPY, using options that trade for the last time 53 days hence, on May 15. The premium is a $1.11 credit per contract share and the stock at the time of entry was priced at $226.60.

The implied volatility rank (IVR) stands at 73.7%.

Premium: $1.11 Expire OTM
SPY-bear call spread Strike Odds Delta
Calls
Long 269.00 86.0% 18
Break-even 261.89 85.0% 19
Short 263.00 84.0% 20

The premium is 37% of the width of the position’s wing.

The profit zone covers a 15.6% move to the upside.

The risk/reward ratio is 4.4:1, with maximum risk of $489 and maximum reward of $111 per contract.

By Tim Bovee, Portland, Oregon, March 23, 2020

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SPY Analysis (lot 13)

SPDR S&P 500 ETF Trust (SPY)

I have entered a short bear call spread on SPY, using options that trade for the last time 53 days hence, on May 15. The premium is a $1.03 credit per contract share and the stock at the time of entry was priced at $223.37.

The implied volatility rank (IVR) stands at 73.7%.

Premium: $1.03 Expire OTM
SPY-bear call spread Strike Odds Delta
Calls
Long 266.00 87.0% 17
Break-even 259.97 85.5% 19
Short 261.00 84.0% 21

The premium is 41.2% of the width of the position’s wing.

The profit zone covers a 16.4% move to the upside.

The risk/reward ratio is 3.9:1, with maximum risk of $397 and maximum reward of $103 per contract.

By Tim Bovee, Portland, Oregon, March 23, 2020

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SPY Analysis (lot 12)

SPDR S&P 500 ETF Trust (SPY)

I have entered a short bear call spread on SPY, using options that trade for the last time 53 days hence, on May 15. The premium is a $1.08 credit per contract share and the stock at the time of entry was priced at $226.74.

The implied volatility rank (IVR) stands at 73.7.

Premium: $1.08 Expire OTM
SPY-bear call spread Strike Odds Delta
Calls
Long 266.00 86.0% 18
Break-even 259.92 84.0% 20
Short 261.00 82.0% 22

The premium is 43.2% of the width of the position’s wing.

The profit zone covers a 14.6% move to the upside.

The risk/reward ratio is 3.6:1, with maximum risk of $392 and maximum reward of $108 per contract.

By Tim Bovee, Portland, Oregon, March 23, 2020

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Live: Monday, March 23, 2020

10:55 a.m. New York time

I’ve posted three entry analysis of  my short bear call spreads on SPY. They are:

I anticipate no further trades today.

10:20 a.m. New York time

The market downtrend continues. In Elliott wave terms, I see as a  it as a wave 2 correction of the Minute degree to the upside within wave 3 of the Minor degree to the downside, with wave 3 of the Intermediate degree, also to the downside.

I have re-established my SPY short bear call spread positions, divided into three lots, after taking profits on Friday when they exceeded half of their maximum potential profit. I shall post the analyses shortly.

By Tim Bovee, Portland, Oregon, March 23, 2020

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Live: Saturday, March 21, 2020

5:05 p.m. New York time

Three of my option positions, the remnants of short iron condor positions assigned or exited on March 13, expired Friday, March 20, without value. The expirations complete my MAR series of options positions, entered in early February before the crash. I’ve updated the entry analyses with results.

The positions were written on QQQ, SMH and XLK.

By Tim Bovee, Portland, Oregon, March 21, 2020

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Live: Friday, March 20, 2020

3:05 p.m. New York time

I have updated with results the analyses of my three bear call options spreads positions on SPY. They are:

I shall enter new SPY positions on Monday.

12:40 p.m. New York time

As it turns out, all three of my SPY short bear call spread positions exceeded half of maximum potential profit, which is my signal to exit. Which I did, and I shortly I shall update with results the analyses for SPY lots 9, 10 and 11. I entered lot 9 on March 16, and lots 10 and 11 yesterday, once again illustrating the velocity of market sentiment in these times.

12:25 p.m. New York time

On the S&P 500 chart, by my count the 3rd Elliott wave of the Minor degree in the decline that began March 3 continues its downward course.

I’d like to step back for a bit of orientation. In this discussion, I refer to three wave degrees, all following the same rules but nested one within the other, like Russian Matryoshka dolls.

R.N. Elliott, in his 1938 book The Wave Principlenamed nine degrees of wave. From the largest to the smallest, they are Grand Super Cycle, Super Cycle, Cycle, Primary, Intermediate, Minor, Minute and Minuette.

February 19, when the crash began marked the peak of the Intermediate 5th wave within a peaking Primary wave, and the decline that followed was Intermediate 1st wave of new Primary 1st wave to the downside.

In trading this bear market my primary interest is the Minor degree, with the Intermediate degrees proving a larger trend model and the Minute degree helping me understand where we are in the current Minor wave.

Internally, the S&P 500 is perhaps finishing up a Minute degree 4th wave correction upward, and after that it will continue with a 5th Minor wave to complete the Intermediate degree 1st wave of the decline from February 19, the day the crash began.

So far the Minor 3rd, at 15.9%, is shorter than the 1st, at 20.3%. It’s not a hard and fast rule, but the 3rd wave tends to be the longest of the three waves moving in the direction of the trend — impulse waves — so the assumption that the Minor 3rd wave will exceed 20.3% is a higher probability than that it will stop short of that level.

That gives us a probability that the Minor 3rd wave will at the least reach the 2280 level on the S&P 500, and there are no brakes there to halt the fall.

So, to current business.

My remaining MAR series options expire today. They are a sad remnant of the short iron condor positions I had entered in early February, before the crash. Earlier I exited the some of loss-making in-the-money wings of the iron condors, exited some entirely, and had two exercised, as described in my “Live” post of March 13.

In retrospect, which always provides the clearest view, I ought to have exited immediately after it became clear that we were in a crash, which was the S&P 500’s opening gap to the downside on February 24. In the future, during this bear market, I shall take it as a firm exit signal when a position moves above the strike price of its short call.

The three remaining positions, all truncated to short bear call spreads, have no value — which means a 100% profit for short positions — and I expect them to expire after the closing bell. There is a some theoretical chance of exercise, but I’ve not seen that yet on worthless options.

Over the weekend I shall update with results the analyses of the full iron condors — the losses taken March 13 and the full-profit expirations of today.

Otherwise, I’m fully invested in short bear call spreads on SPY, which tracks the S&P 500, with funds also invested in long shares of SDS, which does the inverse of SPY and doubles the movements. No trades in sight today.

By Tim Bovee, Portland, Oregon, March 20, 2020

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