10:20 a.m. New York time

I’ve posted results of today’s exit from my SPY options position.

9:45 a.m. New York time

I have exited my short bear call spreads on SPY for 54% of maximum potential profit and shall update the entry analysis shortly with results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue in their downtrend, which began June 8 at 3231.25. The low so far is 2923.75 this morning before the opening bell.

What does it mean? The meaning at this point is a question: Is the decline nearing an end? How I manage my present options and stock positions depend upon the how that question is answered.

What does Elliott wave theory say? By my count, the index is in Minor wave 5 of Intermediate wave 1 to the downside. Once Intermediate 1 is complete, the next move will be an upward correction, Intermediate wave 2, most likely a zig-zag that could retrace a significant portion of the decline from June 8. All of this is happening within Primary wave 3 to the downside.

Intermediate 1 within Primary wave 3 has so far declined by 9.5% since it began on June 8. Its counterpart, within Primary wave 1, began February 19 and declined by 16%. There’s no rule on how long a 5th wave must be. Minor wave 5 could be nearing completion in the next few days. It could have ended at this morning’s low. It has met all of the requirements of form described in Elliott wave theory.

What is the alternative? … or, Minor wave 5 could extend and cover more ground to the downside before it reverses. There’s no way to tell at this point. And a lot is at stake.

What about my trades? For my short bear call spread options on SPY, the cautious approach counsels exiting now or buying insurance, in the form of a bull put spread, rather than hanging on in the hope of greater profit. Yet, if Minor wave 5 extends downward, I’m leaving a lot of potential profit on the table.

The next wave up, a 2nd wave of Intermediate degree, could retrace as much as 90% of the 1st wave of Intermediate degree, pushing the price back up to the 3100s or the 3200s, with no guarantee of how long it would take for the price to get back down to the 2900s where it is today. Intermediate wave 2 within Primary wave 1 lasted four days, but that came after a particularly energetic decline. I would be surprised if Intermediate 2’s counterpart in the present Primary wave 3 took such a short time.

Basically, it’s a matter of timing. If I exit then I can re-enter with an August expiration at the start of  Intermediate wave 3.

My share holdings in SDS have no expiration, of course, so I’ll continue to hold the shares for now.

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.

• Elliott wave analysis
• Fibonacci level

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, June 11, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.