Friday, November 20, 2020

3:30 p.m. New York time

Half an hour before the closing bell, the S&P 500 index and investments based on it continue to work through the Subminuette wave 4 upsdice correction.

[S&P 500 E-mini futures, 26-minute bars]

9:55 a.m. New York time

What’s happening now? The S&P 500 index continues to work through the very early stages of a decline that will eventually carry it from present levels in the 3500s down to the 2100s or below.

What does it mean? The pattern unfolding since December 2018 has been an expanding Diagonal Triangle. The present decline will eventually carry down to the Triangle’s lower boundary, and that then climb back up to the upper boundary to complete the pattern, and indeed to complete all of the market’s rise since the mid-20th century. (The boundaries are shown on the chart as red lines.)

[S&P 500 index, 6-hour bars]

What does Elliott wave theory say? The present decline is Minor wave 4, a subwave of Intermediate wave 5 within 5th waves of Primary and Cycle degree. This chart, going back to the beginning of 2020, shows how small a movement there has been so far. Early days.

My trading strategy. I’m out of options at present. The analysis shows very limited prospects to the upside and significant likelihoods to the downside. A clear acceleration of Minor wave 4 to the downside will be my signal to start trading short bear call options spreads. Regarding shares in the bear-oriented exchange-traded fund SDS: The end of Minor wave 4 could be a selling opportunity. The idea would be to ride Minor 4 to the lower boundary, take profits, and switch to a bull-oriented fund to ride Minor 5 to the upper boundary.

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Thursday, November 19, 2020

3:30 p.m. New York time

I’ve updated the chart at 30 minutes before the closing bell. The chart shows wave 4 of Subminuette degree has begun its run to the upside.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures dropped sharply in overnight trading, from a daily high of 3623.25 down to a low of 3542.50.

What does it mean? The decline came as five waves, meeting the requirement for completion of the decline that began November 16. The next movement will be an upward move that will stay below 3668, and perhaps below 3623.25.

What is the alternative? There’s sufficient ambiguity in wave counting that the decline might not yet be over, and that would put off the rise to a later date.

[S&P 500 E-mini futures, 26-minute bars, with volume]

What does Elliott wave theory say? These are all small-scale movements within Minor wave 4, a downward movement that began with the 3rd wave peak on November 9, at 3645.99 on index, 3668 on the futures. The overnight decline was wave 5 of Micro degree, and it completed wave 3 of Subminuette degree, which began on November 16 at 3637 on the futures.

The usual caveat: I’m uncertain about the degree of the subwaves of Minor wave 4. It could be that what I called Micro will turn out to be Minuette, and what I call Subminuette will be counted as Minute, moving the present count up by two degrees. But I’m not willing to reach that conclusion yet.

My trading strategy. In terms of Elliott wave analysis, I won’t be willing to re-enter options until I can resolve the ambiguity in judging the degree. I want to catch the main decline within Minor wave 4, and at this point I can’t define when that would be.

No ambiguity about my bearish shares in SDS. I’m hanging on at least until the price approaches the lower boundary of the Diagonal Triangle that began in December 2018. The red line on the chart is the upper boundary of the triangle.

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Wednesday, November 18, 2020

3:30 p.m. New York time

Wave 5 of Micro degree, possibly, has begun the final downward push within wave 3 of Subminuette degree. The chart is from half an hour before the closing bell.

[S&P 500 E-mini futures, with volume]

10:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures crept continued to trace a small-scale upward correction within a much larger uptrend that is nearing its end.

What does it mean? The uptrend is part of the last movement of a rise that began in 2009. Its completion will cascade to longer trends, completing the rise since 1974, and, a level higher, since 1932. So it’s a really a big deal.

[S&P 500 index, daily bars]

What does Elliott wave theory say? The rise since December 2009 is Intermediate wave 5 within Intermediate wave 5 (began in 2018) within Primary wave 5 (began in 2009) within Cycle wave 5 (began 1974) within Supercycle wave 5 (began in 1932).

At a smaller level, Minor wave 4 — a subwave Intermediate 5 — is underway, beginning on November 9, when Minor wave 3 reached completion.

Intermediate wave 5 has taken the form of an expanding Diagonal Triangle, and I expect Minor wave 4 to reach the lower boundary (the lower red line) before Intermediate 5 climbs to new heights.

My trading strategy. The Minor degree is the clock governing my options trades: Short bear call spreads for Minor 4, once it starts the middle wave of its decline, and short bull put spreads for Minor 5. As the longer-term chart shows, Minor 4 is just getting started.

For my bearish shares (the inverse fund SDS) I’m playing the Intermediate waves.

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Tuesday, November 17, 2020

3:30 p.m. New York time

I’ve updated the chart with half an hour to go before the closing bell.

9:55 a.m. New York time

What’s happening now? The S&P 500 continues to work their way downward within a countertrend correction.

What does it mean? The downward movement will be followed by a rise above the November 9 high, completing the countertrend correction and beginning a decline to the lower boundary of the Diagonal Triangle that began in December 2018.

What is the alternative? The Dow Jones Industrial Average reached a new high, exceeding the November 9 peak. If the S&P 500 does the same — it hasn’t yet on the indexes or the futures — then the analysis would show the new peak to be the beginning of the downward correction.

[S&P 500 E-mini futures, 20-minute bars, with volume]

What does Elliott wave theory say? The November 9 peak marked the end of Minor wave 3 to the upside and beginning of Minor wave 4 to the downside. Both waves are components of Intermediate wave 5 to the upside, a Diagonal Triangle forming the final sub-wave of Primary wave 5, which began in 2009.

My trading strategy. I’m delaying entry into options positions — short bear call spreads — until I’m certain that Minor wave 3 is truly over. I’m continuing to hold my bearish stock positions.

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Monday, November 16, 2020

3:30 p.m. New York time

I’m making a change going forward. I’ll use the S&P 500 E-mini futures chart for detailed charts, and the index chart for the big picture. The futures tend to lead the index. No surprise. The futures trade 24-hours a day, Sunday evening through Friday afternoon, New York time. At major turning points I’ll give both the index and the futures prices.

In the chart below — the futures — I have numbered subwaves of the decline that began November 9 as being of the Subminuette and Micro degrees. That’s purely a guess, as we don’t have enough context to have confidence in labelling the degree. Here’s the futures chart, half an hour before the closing bell.

[S&P 500 E-mini futures, 20-minute bars, with volume]

10:45 a.m. New York time

What’s happening now? The S&P 500 index continues its early work on the second downward retreat within a larger upward correction.

What does it mean? The downward movement, which will approach and perhaps exceed 2000, will be followed by an upward movement back above 3600 and perhaps higher than 3700.

[S&P 500, hourly bars]

What does Elliott wave theory say? The 3645.99 level, was the peak of Minor wave 1, the third wave of a five-wave expanding triangle that began nearly two years ago, and the present retreat from that peak is the early stage of a decline from the upper boundary of the triangle to the lower boundary, presently around 2118. The boundary will be lower by the time the price approaches that level.

My trading strategy. Hold bearish shares; wait to enter new bear call options spread positions.

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Friday, November 13, 2020

9:50 a.m. New York time

What’s happening now? The S&P 500 index begins the day little changed as it traces out the very early steps in what will become a significant decline.

What does it mean? The decline will carry the price down to the lower boundary of the expanding Diagonal Triangle (red lines) that began in December 2018. The lower boundary is presently at 2131 and is declining by about $3 per day. The longer the journey down, the lower the boundary.

[S&P 500, daily bars]

What does Elliott wave theory say? The triangle is presently beginning wave 4 of Minor degree. The preceding Minor wave 3 began at 2191.86 on February 23 and ended at 3645.99 on November 9. This is gives some idea of the magnitudes of time and distance that lie ahead.

The downtrending Minor wave 4 will be followed by an uptrending Minor wave 5, which will carry back to the upper boundary, marking the end of the parent wave, Intermediate wave 5. The upper boundary is moving higher each day — such is the nature of an expanding triangle — and so wave 5 will move to higher levels than we’ve seen this year.

My trading strategy. I’m waiting for a good entry point for options, with a bear call vertical spread as my strategy. I’m holding on to my bearish shares in the inverse fund SDS.

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Thursday, November 12, 2020

3:35 p.m. New York time

I’ve updated the chart below at 30 minutes before the closing bell. The small scale wave 5 to the downside has begun in the early stages of wave 4 of Minor degree.

10 a.m. New York time

What’s happening now? The S&P 500 index has completed a four-move pattern to the downside as it begins its journey south to the lower boundary of the expanding Diagonal Triangle that began in December 2018.

What does it mean? It’s still early steps, but the decline that began on November 9 will carry the price from the peak 3645.99 down to the 2150s or below. That downward movement will be followed by an upward push to a new high.

[S&P 500 index, 45-minute bars]

What does Elliott wave theory say? The Diagonal Triangle is the conclusion of uptrending Primary wave 5. The present decline down toward the lower boundary is Minor wave 4, and the subsequent rise will be Minor 5, the final wave within Primary wave 5. I wouldn’t hazard a guess at this point identifying the degree of the four-wave decline from the peak.

My trading strategy. Shares: continue to hold bear positions with an eye to possibly selling at the low end of Minor wave 4. Options: My next entry window for spreads is November 24 to December 8, centering on 21 days before the January options expire.

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Wednesday, November 11, 2020

9:45 a.m. New York time

What’s happening now? The S&P 500 index continues its initial steps downward in the 4th leg of a Diagonal Triangle pattern that began in December 2018.

What does it mean? The downward movement is headed for the lower boundary of the Triangle, which is now in the 2100s. The slower the decline, the lower the boundary.

[S&P 500, 90-minute bars]

What does Elliott wave theory say? Minor wave 4 to the downside within Primary wave 5 to the upside is underway. Minor 4 will ultimately have three subwaves of Minuette degree. Minor 4 will be complete when it touches, or at least comes near to, the lower boundary of the Diagonal Triangle. After wave 4 is complete, Minor wave 5 will rise again to the upper boundary, completing Primary wave 5.

My trading strategy. Still in flux. Wave 4 might be a trading opportunity for options and an exit opportunity for my shares of SDS, an inverse fund based on the S&P 500. My goal now is to be sure that wave 4 is indeed complete.

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Tuesday, November 10, 2020

10:15 a.m. New York time

The S&P 500 price moved above a significant level yesterday, requiring a rethinking of the Elliott wave analysis that had been in place for several months. See the analysis here.

What’s happening now? The S&P 500 index this morning continued to linger slightly below the upper boundary of the triangle that began on December 26, 2018.

What does it mean? The third wave of the five-wave triangle is complete and will soon start to decline to the lower boundary, presently in the low 2000s or even lower.

[S&P 500 index, daily bars]

What does Elliott wave theory say? The structure that began in December 2018, from 2346.58, is an expanding Diagonal Triangle within the 5th wave of Intermediate degree.

Each wave within an expanding Diagonal Triangle is longer than the one before, bounding between boundaries that grow farther apart. So wave 4 of the triangle, just beginning, drops beyond the triangles starting point down to the low 2000s, if it moves swiftly, and even lower if it moves slowly. Minor wave 5 which follows will rise back to the 3700s, the upper boundary of the triangle next week, and even higher if it is a slow rise.

Each wave within the triangle has three subwaves, labelled A, B and C.

My trading strategy. The 4th wave decline will provide an opportunity to exit my shares in SDS, an inverse exchange-traded fund that profits when the S&P 500 falls. Whether I actually take profits depends upon the timing, since long-term capital gains (on stocks held for a year or longer) get a tax break in the U.S. I’m still looking at whether wave 4 would be a reasonable options play. Given the distances involved it seems reasonable at first glance, and if I decide to play it I’ll use a bear call spread structure for the options.

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The Great Bull Market, 1974-????

November 9, 2020, 11:25 a.m. New York time

The markets gave traders a major head-fake, beginning with futures trading on Sunday and continuing today with all blue-chip indexes and funds after the opening bell.

It was the second major head-fake of the year. Both were of a magnitude that ripped my previous analysis to shreds. With this post, I shall try to sweep away remains of the old analysis and put in its place a new analysis that will show where the markets stand, in light of their rise today.

I shall use a long-term Dow Jones Industrial Average chart for the big-picture analysis, stretching back from the present to before the Great Crash of ’29.

[Dow Jones Industrial Average, quarterly bars]

The rise from 1974 is wave 5 of Cycle degree within wave 5 of Supercycle degree, the latter having begun with the Great Crash of 1929. Cycle 5 began on December 9, 1974 at 570 on the Dow. It’s parent, Supercycle 5, began on in July 8, 1932 at 40.6. The peak so far today is 29,933.83. The markets have come a long way in the past 88 years.

Within Cycle wave 5, I count the indexes as being in wave 5 of Primary degree, which began in January at 6465.95 on the Dow. The answer to the head-fake highs this year lie within Primary wave 5.

For a closer look at Primary wave 5, I turn to a chart of the S&P 500 index.

[S&P 500 index, monthly bars]

Primary wave 5 is presently in its 5th and final wave, wave 5 of Minor degree. Minor 5 as it turns out is taking the form of a Diagonal Triangle. In this case, it is an expanding version of the structure, delimited by the red lines.

Internally, a Diagonal Triangle has five waves, each built by three waves of a lower degree. By my count the Triangle is in wave 3 of Minor degree, which is rising, and it will be followed by a falling Minor 4 reaching below 2191.80, and then a rising Minor 5 that will reach a new high.

Each wave of a Diagonal Triangle has three waves within it, in this case of Minute degree.

So what happens after the Diagonal Triangle is complete? By my reading of the chart, that final high will mark the end of the Great Bull Market that began in 1974, and a major, years long decline will begin.

However, that would be the second time this year I’ve said that, only to be hit by a head-fake. I’m not yet signing on to that interpretation. Both declines this year, beginning in February and in September, proved to be false signal of a major bear market when the 2nd wave moved above the start of the preceding 1st wave.

Lesson learned: I don’t plan to call a major decline until I have a clear 3rd wave to the downside.

My trading strategy: Minor wave 4 within the diagonal triangle ought be a trading opportunity with options. Wave 5 as well. Insofar as my bear-oriented shares in SDS are concerned, I’ll be looking for an exit opportunity was wave 4 reaches its low point.

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