10:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue the early stages of what will become a significant decline.

What does it mean? The movements we’ve seen since June 8 are the gentle opening bars of Wagner’s “Das Rheingold”, and as always, with Wagner and the markets, it will be followed by drama aplenty, in the form of a major decline

What does Elliott wave theory say? Minor wave 3 within Intermediate wave 1 began June 19. The encompassing degree, Primary wave 3, began June 8, and will carry price The movement of the encompassing degree, Primary wave 3,  will a significant distance toward the 2000 level, from the 3054 price as of this posting.

What is the alternative? It will take a break below 2976.25, the end of Minor wave 1 attained on June 15, for Minor wave 3 to be verified. Without the verification, it is possible that Minor wave 2 is tracing a complex course. I don’t consider this to be likely.

 

 

What about my trades? I anticipate no trades today. I’m waiting for Intermediate wave 3 before entering bear call options spreads on SPY. My shares, SDS, make money when the S&P 500 declines. They became unprofitable at the beginning of Primary wave 2 at 2174. So I’ll hold my shares during the ride down to 2000, and then begin trading in and out to catch impulse waves at the Intermediate degree.

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10:10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue a course somewhere between sideways and down.

What does it mean? When the low-degree hesitation is over, the index will start a major decline to below 2050, perhaps well below. The likely target is set by the lower boundary of the channel, which moves lower every day.

What does Elliott wave theory say? The low degree of hesitation is Minor wave 2, and by some counts it could already be over. Or not. When Minor wave 2 to the upside is complete, it will be followed by Minor waves 3 down, 4 up and 5 down, before the the one degree higher movement to a upside, Intermediate wave 2. That upward correction will remain below 3231.25. It will be followed by the major decline, Intermediate wave 3

 

What is the alternative? The main variables are questions of timing. Intermediate wave 1 is already in its 25th day, so it’s overdo for a wrap-up. All any trader can do is watch closely and hope for clarification.

What about my trades? I’m holding no options on SPY at this point. I’m waiting for Intermediate wave 3. I’m continuing to hold my shares of SDS, which will gain value as the S&P 500 Intermediate wave 3 traces its decline.

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10:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are on the decline this morning, part of the middle wave of a downward movement within a larger upward correction that began June 25, all of that happening within a larger downward movement that began June 8.

What does it mean? The present downtrend will be followed in short order by a rise that may wrap up the present upward correction. Although, not necessarily. See the alternative below.

What does Elliott wave theory say? I posted a chart of Minor wave 1 down on Thursday, and of the entire Cycle degree decline from February 19 on Tuesday. Just imagine a bit of squiggly added to the right end and you’ll be caught up at those levels.

Today I want to focus close in, on Minor wave 4, which began on June 25. Fourth waves are tricky beasts. They tend to be shallower that their correction companion, the second waves. They also tend to expand into complex compound patterns that always leave me more than a little frustrated. If I could just squint my eyes and skip all 4th waves, I would be happy in my Elliott wave analysis. But such avoidance cannot be, so let’s move forward.

As I count the waves, the S&P 500 has completed the first wave up, a Minute A wave, within this upward Minor 4th correction, and begun the subsequent Minute B wave to the downside. Once the B wave is complete, the price will rise again in a Minute C wave, sketched on the chart in red, completing the Minor 4th wave correction.

Next comes the Minor 5th wave, which will carry the price below 3000 and complete the 1st wave of Intermediate degree, which will be followed by a 2nd wave correction of the Intermediate degree.

What is the alternative? The Minute C wave, rather than completing the 4th wave, might instead usher in an X-wave separator that will be followed by another corrective pattern. It’s not at all unusual. If that turns out to be the case, it makes no difference to the fact that Minor wave 5 will begin after the correction. It just won’t be as soon as it would be under a simple form 4th wave.

What about my trades? The Intermediate 1st wave will be followed by a 2nd wave correction of the same degree. It is the end of that 2nd wave correction that I hope to catch with some bear call spread options trades on SPY. As I’ve noted before, I’ll continue to hold my SDS, which inversely to SPY, during these low-level corrections.

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10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are in the later stages of a decline within the early stage of a larger decline.

What does it mean? The early stage of the larger decline will be followed by an upward correction that may well bring the price up close to 3100 — temporarily. The correction will be followed in turn by a move down toward the lower boundary of the trend channel, below 3000.

What does Elliott wave theory say? The channel connects the starting points of Minor waves 1 and 3 for the upper boundary and a parallel line through the start of Minor wave 1 for the lower boundary. Once Minor wave 3 is completed by a 4th wave correction upward and a final 5th wave downward, then a significant 2nd wave uptrend at the Intermediate degree will begin. Second waves, if structured as they usually are as a zig-zag, can retrace as much as 90% of the 1st wave decline. That would put the Intermediate 2nd wave peak as high as the 3180s. No guarantee, of course, that it will retrace 90%. It’s a tendency, not a rule.

What is the alternative? What I’m counting as Minor wave 3 could in fact still prove to be a complex 2nd wave correction. A fall below 2923.75 would remove the alternative.

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11:50 a.m. New York time 

The downtrend this morning suggests that Minor wave 3 is indeed underway. I’ve updated the chart, which also corrects the Subscripts and Degrees table to “Minute” for the {-2} subscript (replacing the incorrect “Minuette”, which is the {-3} subscript).

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are working their way down for the second consecutive day.

What does it mean? The small downtrend may be the beginning of a large downtrend, but it is not yet certain and it won’t happen immediately.

What does Elliott wave theory say? As the chart has played out, it has become clear that my degree labelling is one level too high. I’ve dropped things down, so that what I had labeled as Intermediate degree is now labelled as Minor degree.

The decline that began June 23 marks the beginning of the 3rd wave of minor degree within Intermediate wave 1 within Primary wave 3. The 3rd wave of Primary degree will be a major decline, signaled by the start of the 3rd wave of Intermediate degree. My earlier labelling suggested that the Intermediate 3rd wave is close, but the new labelling pushes it out into the future. Up next: Intermediate wave 1 to the downside reaches completion, perhaps a week or so from now, and Intermediate 2 corrects a significant part of the decline that began on June 8. Only then do we see the capitulation, as traditional traders term energetic declines, such as 3rd waves in Elliott wave theory.

What is the alternative? It’s possible that Minor wave 2 will extend into a complex pattern, which would push the start of Minor 3 further into the future. And for the long-term prospects, it’s always possible that my original labeling was correct, making the start of Intermediate wave 3 an event we’ll see sooner rather than later. The degrees don’t come with “You Are Here” signs, sadly.

What about my trades? I’m waiting for Intermediate wave 3 before I enter options positions on SPY. When I do, they’ll be structured as bear call spreads. I’m holding my shares of SDS, which moves inversely to SPY.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have been tracing a sideways course since June 16.

What does it mean? The chart has become ambiguous. Either the upward correction is still underway or the next downward move has begun. If the index is still correcting, then it will stay below 3231.25. If the decline has begun, then it will  pick up momentum as it falls, eventually, by 1,000 points or more.

What does Elliott wave theory say? On the chart I have wave 2 of Intermediate degree ending on June 16 at 3156.25. That analysis means that Intermediate wave 2 lasted one day, which is quite short for that degree. If wave 2 is still underway, then it is in its 8th day, which seems about right for Intermediate degree.

 

What is the alternative? The beginning of Intermediate 3 has yet to be confirmed by a drop below the end of Intermediate wave 1, at 2923.75 on June 15. Absent a move below that level, it remains possible — probable? — that Intermediate wave 2 is still underway.

What about my trades? I intend to enter a bear call spread position on SPY when I gain some clarity regarding the start of Intermediate wave 3. I shall continue to hold my shares of SDS, which rise when the S&P 500 falls.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures has begun the middle portion of a significant decline, part of the mid-decline of a larger trend. I.e., this fall will have legs.

What does it mean? The upward correction of the crash beginning February 19 ended on June 8. The decline that has kicked off on June 16 will persuade all doubters that, yes, it’s real.

What does Elliott wave theory say? The 3rd wave of Intermediate degree began its downward trek on June 16 from 3156.25. So far, in five calendar days, it has fallen by 4.1%. This is happening within the wave of higher degree, Primary wave 3. Two 3rd waves in combination tend to have a lot of energy in the direction of their trend.

What is the alternative? It is possible, barely, that the 2nd wave of Intermediate degree is still underway. If so, it is in its final wave — a C — and will soon begin the Intermediate 3rd wave decline. A decline below 2923.25, the start of Intermediate wave 1, will eliminate this alternative.

What about my trades? This is the point where I start to considering specific entry points for bear call spread options positions. At present the SPY, which tracks the S&P 500, is in a lower-degree uptrend. My entry point will come after that, as the market starts to show some downside momentum. Tomorrow, perhaps? My shares in SDS profit as the S&P 500 falls, so I’ll hang on to them.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have begun the final leg up in the upward correction that began June 15 at 2923.75.

What does it mean? The end of the upward correction will be the beginning of a major decline that will eventually carry the price down to around 2000 or below.

What does Elliott wave theory say? The current wave up is a C wave of Minor degree. C waves often are the same length as the preceding A wave, which in this case was 277 points. Add that to the starting point of Minor C — 3064.50 on June 17 — and that gives a target of 3284.25 as the end of Minor wave C and also of Intermediate wave 2.

But 3284.25 violates a rule of Elliott wave theory: A 2nd wave cannot move beyond the start of wave 1, which in this case was 3231.25 on June 8. So 3231.25 is the maximum rise allowed under the present count.

What is the alternative? I’ve been writing this a lot lately, but the alternative is a move beyond 3231.25, which destroys the entire count since February. I don’t expect it to happen.

What about my trades? Minor wave C is in Minute wave 3 out of five waves total, so it’s time to think about how best to get back into options once Minute wave 5 begins. As of today the monthly options expiring July 17 are 28 days away, just seven day’s before I exit winning options positions. The monthlys expiring August 21 have 63 days left. The ideal midpoint is 45 days, so August is 18 days before that point and July is 17 days after. Wave C may have another day or two to go, so the August options seem to be the best choice.

After Intermediate wave 3 begins, there’s still value in waiting to enter. The Minor 1st wave of Intermediate 3 will be followed by a wave 2 that will retrace a significant part of that 1st wave. So, perhaps best to wait until late in Minor 2 so I can catch Minor 3 of Intermediate 3.

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9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly in overnight trading in and then took back part of the upward movement as it traces through the middle portion of an upward correction within a larger downtrend.

What does it mean? The early morning decline has retraced exactly down to the 38.2% Fibonacci level. If that is in fact the end of the middle portion of the correction, then the next move we be a correction finale to the upside, ending above 3150.75 but below 3231.25.

What does Elliott wave theory say? Whether the middle portion of the correction — a B wave of Minor degree — is in fact complete remains ambiguous. In the Zigzag pattern, B waves tend to retrace between 38% and 79% of the preceding A wave, so the present downward B-wave correction within an uptrending 2nd wave correction of Intermediate degree may in fact be complete. But it could still decline by quite a bit and remain true to the norms of B waves in Zigzags.

In either case, once the Minor C wave reaches its end, it will be followed by an Intermediate 3rd wave decline within a Primary 3rd wave decline. In Elliott wave analysis, 3rds waves tend to be single-minded and powerful as they pursue their trend. So after C look for a significant decline.

What is the alternative? The usual: A move 3231.25 would be the end of the world as we know it, at least insofar as the present Elliott wave analysis goes. It would trigger a full reassessment of my count since February 29.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue to trace out a decline from the June 8 peak of 3231.25. At present it is undergoing a small correction to the upside that has a high likelihood of remaining below 3250.

What does it mean? The price is near the top of the channel. When the decline resumes, the price will drop, fairly rapidly I would think, down to the channel’s lower bound in the low 2100s.

What does Elliott wave theory say? The correction is Minor wave 2 to the upside within Intermediate wave 1 to the downside within Primary wave 3 to the downside within Cycle wave 1 to the downside. Within Minor 2, I think Minute wave A to the upside is complete and the price is beginning Minute B, a small downward correction.

 

 

What is the alternative? Primary wave 2 could still be underway, although it’s potential for a further rise is seriously constrained: It cannot move above the February 19 high, 3397.50, without forcing a re-analysis of everything that has happened in the market since then.

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