Friday, September 25, 2020

3:50 p.m. New York time

As it turns out the alternative count is correct. The S&P 500 index is in Micro wave C of Subminuette wave 4.

11:20 a.m. New York time

I’ve updated SPY Analysis with results.

10:25 a.m. New York time

I’ve exited my short iron condor position on SPY for 14.8% of maximum potential profit and shall update the entry analysis with the exit info later today.

9:05 a.m. New York time

What’s happening now? The final push to the downside by the S&P 500 index, now underway, will complete the decline that began September 16, approaching the lower boundary of the price channel at around 3100.

What does it mean? The end of the decline will be the starting point of an upward correction that will carry the price toward the upper boundary of the price channel, which is presently around 3278.

What is the alternative? Another interpretation of the chart has the upward correction that began September 21 continuing, with the final push to the downside not yet having begun.

[S&P 500 index, 30-minute bars]

What does Elliott wave theory say? By my principle count, wave 5 of Subminuette degree began on September 23 from 3323.25. The 1st wave of Micro degree within Subminuette 5 perhaps ended September 24 at 3209.45, or perhaps is continuing. There are ambiguities.

By my alternative count, the September 23 high was the end of wave A of Micro degree within Subminuette wave 4, and the low of September 24 was the end of Micro B, the the Micro C wave now underway.

My trading strategy. My short iron condor position on SPY is 21 day before expiration, the day I manage profitable trades. My SPY position is profitable, at 14.8% of maximum potential profit. If my principle count is correct, then I should exit now. Any further decline will erode that profit. If my alternative count is correct, then I should hold on to the position in the expectation of further rise, which will bump up my profit by a bit. I’ll make a decision as the day progresses.

I continue to hold my SDS shares.

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Thursday, September 24, 2020

7:55 a.m. New York time

What’s happening now? The S&P 500 index reversed at 3,333.25 on September 23, completing its upside correction, and resumed its decline in the direction of the principle trend.

What does it mean? The present movement down is the final act of the decline that began on September 16. It will be followed by an upward correction that, if it has the energy, could move into the 3,500s. It will stay below 3,588.11, the peak attained on September 2.

[S&P 500 index, 30-minute bars]

What does Elliott wave theory say? Wave 4 of the Subminuette degree ended yesterday at 3333.25, and Subminuette wave 5 began. If the 5th wave reaches the lower boundary of the price channel, it will reach completion somewhere in the 3100s.

The end of Subminuette 5 also ends Minuette wave 3, which began its downward course on September 16 at 3428.92. What follows will be a corrective wave, wave 4 of Minuette degree. A 4th wave is always a different pattern than the preceding 2nd wave. Minuette wave 2 was a Zigzag, so wave 4 will be a Flat, a Triangle or a Flat Combination.

My trading strategy. My short iron condor options on SPY are trading at 8.7% of maximum potential profit. The 4th wave reversal to the upside ought to improve that. Under my rules I exit profitable positions 21 days before expiration, which would be Friday in this case. However, I shall let the Elliott wave analysis guide me in that action. So maybe Friday. I continue to hold my bearish shares of SDS.

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TSLA Analysis

Tesla Inc. (TSLA)

I was curious about the TSLA — news reports on its price movements tend toward the dramatic. As it turns out, when the sharp light of Elliott wave analysis is applied, TSLA is similar to other Blue Chips.

What’s happening now? By this analysis, TSLA peaked on September 1 at 538.75, and then began to decline. I have counted the decline as though it were the beginning of a major downtrend. It could just as well be a corrective pattern what is either a major downtrend, or a correction within an uptrend.

[TSLA, 30-minute bars]

What does Elliott wave analysis say? The first wave down, labelled 1 {-3}, the Minuette degree, ended on September 8 at 308.00. Internally, I count it as five waves, which is correct for a 1st wave.

However, an A wave in a Zigzag correction pattern also has five subwaves.

The second wave, labelled 2 {-3}, peaked on September 16 at 461.94. It has three subwaves — A, B and C at the Subminuette level, as we would expect for wave 2 in a downtrend.

However, a B wave in a Zigzag also has three subwaves.

If the analysis is correct, the present third wave — 3 {-3} — will play out with five subwaves as it declines. So far, I count two complete subwaves, at the Subminuette degree {-4}, with Subminuette 3 underway.

In a Zigzag, wave C also will have five subwaves.

So how do we tell the difference? Elliott wave analysis is famous for its ambiguities. But it has rules that will eventually eliminate one or the other of the possibilities.

The current wave will be followed by an upward movement. If the decline from September 1 is the beginning of a downtrend, then that upward movement will be a 2nd wave correction and will remain below the beginning of the first wave of Minuette degree, 538.75.

If early September’s decline was a correction within an ongoing uptrend, then the price will move above 538.75 and the shorts will have a very bad day.

On the larger TSLA chart, I count five waves up from June 3, 2019, when the stock sold for 35.40, so my best conclusion is that TSLA has begun a significant downtrend.

I’m not planning to trade TSLA options today. If I were, it would be a short bear call spread or short iron condor, the latter hedge reflecting TSLA’s tendency toward large and sudden moves.

By Tim Bovee, Portland, Oregon, September 23, 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
Creative Commons 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.

Wednesday, September 23, 2020

9:55 a.m. New York time

What’s happening now? The S&P 500 index continues to work its way through an upward correction of the principle downtrend. So far the price has retraced almost 50% of the 199.82 point decline from September 16 to September 22.

What does it mean? The shallowness of the correction so far suggests a greater likelihood that it will be a sideways movement rather than a strong push toward the September 16 high.

[S&P 500 index, 5-minute bars]

What does Elliott wave theory say? The Subminuette 4th wave correction that began September 21 appear to be taking the form of a Flat, a form of correction that is shallower than the Zigzag seen in Subminuette 2. A 4th wave often ends within the 4th wave of Minor degree within the preceding 3rd wave of Subminuette degree — subwave 4 of 3. That subwave began and ended on September 18, with the price starting at 3,292.40 and ending at 3,327.30. The Subminuette 4th wave correction has so far reached a high of 3,321.85, which is within subwave 4 of 3, and if this correction behaves typically, it won’t rise above 3,327.30.

My trading strategy. My short iron condor options on SPY are at 28.2% of maximum potential profit, and if the position remains profitable, I shall exit on Friday, 21 days before expiration. I continue to hold my shares in SDS, the inverse S&P 500 fund.

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Tuesday, September 22, 2020

9:50 a.m. New York time

What’s happening now? The S&P 500 index reversed into an uptrending correction, reaching a high so far of 3,298.18.

What does it mean? The correction, when complete, will be followed by a renewed decline that will carry the price to the the lower boundary of the price channel. Assuming that takes a couple of days, the price would reach down into the 3,170s, more or less.

[S&P 500 index, 5-minute bars]

What is the alternative? The timing of the decline is the question. Corrections sometimes trace extended patterns, and the longer the correction goes on, the further down the lower boundary drops. Target setting is quite problematic within this context.

What does Elliott wave theory say? The correction is wave 4 of the Subminuette degree, and the final push to the downside will be wave 5. Under Elliott’s Rule of Alternation, a 4th wave correction tends to trace a different pattern than the prior 2nd wave correction. Subminuette wave 2 was a simple Zigzag pattern, a single three wave climb to the upside. Under the rule, Subminuette 4 has a likelihood of being a Flat pattern — a sideways trend — or a complex pattern, stringing together several Flats or mixing Flats and Zagzags. At this point it’s impossible to understand how Subminuette wave 4 will play out.

My trading strategy. At present my short iron condor positions on SPY are at 21.5% of maximum potential profit (my target is 50%). I’m continuing to hold my shares in the inverse fund SDS.

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Monday, September 21, 2020

10 a.m. New York time

What’s happening now? The S&P 500 index is continuing the decline that began on September 16. The price so far has reached a low of 3,248.15, down 5.3% from the September 16 high.

What does it mean? By falling below the low of September 11, which was 3,310.47, the index has confirmed that the correction is over and the downtrend has resumed.

[S&P 500, 15-minute bars]

What does Elliott wave theory say? Wave 3 of Minuette degree began on September 16. The Subminuette degree, one smaller than the Minuette, is in its 3rd wave, which, based on the price channel, appears likely to end around 3,200 or below.

My trading strategy. I shall exit my short iron condor position on SPY, an exchange-traded fund that tracks the S&P 500, around the end of Subminuette wave 3. I shall continue to hold my shares in SDS, an ETF that tracks the inverse of the index, preferably into next year, when some of the lots will become eligible for the long-term tax break.

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Friday, September 18, 2020

10 a.m. New York time

What’s happening now? The S&P 500 index moved slightly lower at mid-day Thursday, to 3,328.82, tentatively marking the end of the decline that began the day before.

What does it mean? The index has begun an upward correction within the downward move that began on Thursday. The correction will remain below 3,428.92, the starting point of the decline.

What is the alternative? It is still possible for the price to reverse and extend the correction that began September 11 from 3,310.47. I find it to be unlikely but can’t rule it out entirely.

[S&P 500 index, 15-minute bars]

What does Elliott wave theory say? Thursday’s low begins the uptrending wave 2 of Subminuette degree within downtrending wave 3 of Minuette degree. At the Subminuette 2 will end below 3,428.92, the starting point of Minuette 3 and within it, Subminuette 1. A firm rule of Elliott wave analysis posits that a 2nd wave cannot move beyond the start of the preceding 1st wave. Subminuette 2 will be followed by Subminuette 3, which will take the price down to new lows in the decline since September 16

My trading strategy. My short iron condor options position on SPY, the exchange-traded fund based on the S&P 500, is 28 days from expiration and seven days until management day, when I take profits. It is trading at 12% of maximum potential profit, and I shall exit at 50% of max.

Also, I’m holding inverse exchange-traded fund shares on the S&P 500 (SDS is the symbol).

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SPY Analysis

SPDR S&P 500 ETF Trust (SPY)

Lot 2020-16

Update 9/25/2020: I exited my short iron condor position on SPY 21 days before expiration, for a $1.27 credit per contract/share, a profit before fees of $22 per contract, or 17.3%. Shares were trading at $332.91, down $4.10 from the entry level.

My decision to exit was based on my Management Day rule that requires managing profitable trades 21 days before expiration. Also, the exit decision, like the entry, was based on Elliott wave analysis. While I held the contract, SPY traced the second half of wave 3 of Subminuete degree to the downside, all of Subminuette 4 to the upside, and at exit was, tentatively, in Micro 2 of Subminuette 5. Micro 2 was uptrending and increased my profit. Once Micro 3 began, it would cut into my profits, so I decided to exit. Had the Elliott wave count suggested a greater likelihood of profit, then I would have delayed exit past Management Day.

Shares declined by 1.2% over eight days for a -56% annual rate. The options position produced a 17.3% return for a +790% annual rate.


I have entered a short iron condor on SPY, using options that trade for the last time 29 days hence, on October 16. The premium is a $1.49 credit per contract share and the stock at the time of entry was priced at $337.56.

The implied volatility rank (IVR) stands at 19.9.

Premium: $1.49 Expire OTM
SPY-iron condor Strike Odds Delta
Long 356.00 87.0% 14
Break-even 352.49 83.5% 17
Short 351.00 80.0% 20
Puts
Short 314.00 80.0% 19
Break-even 310.49 82.0% 17
Long 309.00 84.0% 15

The premium is 29.8% of the width of the position’s wings.
The profit zone covers a 4.6% move to the upside and an 8.5% move to the downside, for a range of 13.1%.

The risk/reward ratio is 2.4:1, with maximum risk of $351 and maximum reward of $149 per contract.

Elliott Wave Analysis. I entered the 2nd wave of Subminuette degree within the 3rd wave of Minuette degree, which began September 16. This gives me the opportunity to capture the 3rd wave of a 3rd wave decline. I’ll exit either 21 days before expiration if profitable, on September 25, or at the completion of Minuette wave 3, whichever comes first.

By Tim Bovee, Portland, Oregon, September 17, 2020

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Thursday, September 17, 2020

10:55 a.m. New York time

I’ve decided to enter an iron condor on the S&P 500 exchange-traded fund SPY, with the options expiring October 16.

10 a.m. New York time

What’s happening now? The S&P 500 index moved slightly lower at mid-day Thursday, to 3,328.82, tentatively marking the end of the decline that began the day before.

What does it mean? The index has begun an upward correction within the downward move that began on Thursday. The correction will remain below 3,428.92, the starting point of the decline.

What is the alternative? It is still possible for the price to reverse and extend the correction that began September 11 from 3,310.47. I find it to be unlikely but can’t rule it out entirely.

[S&P 500 index, 15-minute bars]

What does Elliott wave theory say? Thursday’s low begins the uptrending wave 2 of Subminuette degree within downtrending wave 3 of Minuette degree. At the Subminuette 2 will end below 3,428.92, the starting point of Minuette 3 and within it, Subminuette 1. A firm rule of Elliott wave analysis posits that a 2nd wave cannot move beyond the start of the preceding 1st wave. Subminuette 2 will be followed by Subminuette 3, which will take the price down to new lows in the decline since September 16

My trading strategy. My short iron condor options position on SPY, the exchange-traded fund based on the S&P 500, is 28 days from expiration and seven days until management day, when I take profits. It is trading at 12% of maximum potential profit, and I shall exit at 50% of max.

Also, I’m holding inverse exchange-traded fund shares on the S&P 500 (SDS is the symbol).

Read More »

Wednesday, September 16, 2020

10 a.m. New York time

What’s happening now? The S&P 500 index moved slightly lower at mid-day Thursday, to 3,328.82, tentatively marking the end of the decline that began the day before.

What does it mean? The index has begun an upward correction within the downward move that began on Thursday. The correction will remain below 3,428.92, the starting point of the decline.

What is the alternative? It is still possible for the price to reverse and extend the correction that began September 11 from 3,310.47. I find it to be unlikely but can’t rule it out entirely.

[S&P 500 index, 15-minute bars]

What does Elliott wave theory say? Thursday’s low begins the uptrending wave 2 of Subminuette degree within downtrending wave 3 of Minuette degree. At the Subminuette 2 will end below 3,428.92, the starting point of Minuette 3 and within it, Subminuette 1. A firm rule of Elliott wave analysis posits that a 2nd wave cannot move beyond the start of the preceding 1st wave. Subminuette 2 will be followed by Subminuette 3, which will take the price down to new lows in the decline since September 16

My trading strategy. My short iron condor options position on SPY, the exchange-traded fund based on the S&P 500, is 28 days from expiration and seven days until management day, when I take profits. It is trading at 12% of maximum potential profit, and I shall exit at 50% of max.

Also, I’m holding inverse exchange-traded fund shares on the S&P 500 (SDS is the symbol).

Read More »