Live: Tuesday, March 31, 2020

1:55 p.m. New York time

On the S&P 500 futures chart, the upward correction appears to not yet be complete, as the peak today, 2635.75 before the opening bell, exceeds the peak of 2,634.50, on March 26, which I had tentatively labeled as the end of Elliott wave 4.

Using Elliott wave analysis, what is happening, I think, is a combination of some sort that is still underway. The alternative is that today’s high was the end of wave 4 and wave 5 has begun.

Combinations are more common in 4th waves than in 2nd waves, so that pattern would come as no surprise.

I shall continue to hold my short bear call options spread positions, in anticipation of a 5th wave decline.

By Tim Bovee, Portland, Oregon, March 31, 2020

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Live: Monday, March 30, 2020

11:15 a.m. New York time

The Elliott wave analysis of the S&P futures chart remains ambiguous, as the price declined by 7% from its high of March 26, and then rose again.

I’ve tentatively labeled the movement as the beginning of wave 5 to the downside at the Intermediate level. If the price declines below the beginning of wave 4, at 2174, then that interpretation will be confirmed. If the price rises above the tentative end of wave 4, at 2634.50, then the movement is most likely a combination, a pattern in Elliott that consists of several of the simpler three-wave corrective moves, and wave 4 has not ended.

Time will tell. In any case, my bear call options spreads on SPY are already well positioned whichever way it goes.  If the movement turns out to be a 5th wave, then my positions will return to current profitability. If it’s a combination, then my positions are unlikely to add to the loss, and since the the strike price is out-of-the money (the good spot for short options), they’ll benefit a little from time decay.

In either case, the options don’t expire until May 15, giving them 46 days of life for the downtrend to continue. I anticipate no trades today.

By Tim Bovee, Portland, Oregon, March 30, 2020

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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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