Live: Wednesday, April 8, 2020

3:54 p.m. New York time

And, six minutes before the closing bell, the S&P 500 futures move above 2744, confirming that Intermediate wave C of Primary wave 2 is still in effect. There’s more upside to to come before the Primary wave 3 decline begins.

11:25 a.m. New York Time

What’s happening now? The S&P 500 futures declined by 129.25, or 4.7%, from yesterday’s peak and then bounced slightly. The peak fell short of a 50% retracement, and the pullback brought the price to a Fibonacci 31.8% retracement.

What does it mean? The market is either pausing before resuming its upward correction, or has completed its rise and is resuming its downward course.

What does Elliott wave theory say? The peak came in an Intermediate C wave, a subwave of a Primary 2nd wave. The question is how many subwaves does the C wave have?

Screen Shot 2020-04-08 at 8.06.56 AM

As is often the case in Elliott, the internals of wave C can be interpreted several different ways. my best count is four waves, as shown in the chart above, which shows S&P 500 futures back to the beginning of the crash with two-hour bars.

How high will it go? If my interpretation is correct, then prices will resume the rise in wave 5 {-1} within C within wave 2 {+1}. A target level often seen in 2nd waves is the 61.8% Fibonaccci level, which would be 2930.12. That would be a 6.6% rise, or 180.12 points, from the beginning of wave 5 {-1} at 2750. Under the rules of Elliott wave theory, the price cannot move above the start of the 1st wave, 3397.50.

What’s the alternative? If my count within wave C is incorrect and the wave has reached its peak, then the present decline is the start of wave 1 within wave 3 {+1} to the downside. Third waves are powerful beasts, and this one will carry below the start of the 2nd wave correction, 2174, and perhaps a long distance below.

How will we know which is right? If the S&P 500 futures price moves above 2750, the peak of wave 3 {-1}, then wave 2 is still underway to the upside. If the price drops below 2449, the start of wave 3 {-1}, then wave 3 of the Intermediate degree is underway and the price will decline rapidly thereafter.

What about my trades? My short bear call options spreads, with strike prices at 261 and 263, make money when the market goes down. I shall continue to hold in the expectation that wave 3 to the downside will begin before the options expire on May 15.

By Tim Bovee, Portland, Oregon, April 8, 2020

Disclaimer

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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