3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its rise today, reaching 4178.25 on the E-mini futures and 4183.13 on the index. No change in the analysis. Chart updated.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight from yesterday’s low of 4029.25.

What does it mean? My principle analysis sees the bounce as an upward correction within a downtrend, both of small degree. The rise might well retrace most of the decline from the May 9 high of 4238.25. These small moves are happening within a far larger downtrend.

What’s the alternative? If the price moves above the May 9 high, then the alternative analysis comes into play, seeing the decline from May 9 as a small correction within a larger uptrend.

What does Elliott wave theory say? By my principle count, the decline from the May 9 high is wave 1 of Bitsy degree, the first small step of a very large downtrend. Within Bitsy 1, yesterday’s low marked the end of wave 1 of Subbitsy degree and the beginning of Subbitsy 2. Second waves often retrace much of the preceding first wave. The upward correction will be followed by further decline, in an energetic wave 3 of Subbitsy degree.

By my alternative count, the decline from May 9 is a very low level A wave correction, which will be followed waves B and C, and perhaps be extended in a compound structure before resuming the rise and exceeding the May 9 high.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 hit a low of 4029.25 on the futures, 4056.88 on the index, and turned up in what I count as a very low degree 2nd wave correction to the upside, perhaps at Subbitsy degree, within a 1st wave downtrend one degree higher, perhaps at Bitsy degree. I’ve updated the chart below. No change in the analysis.

2 p.m. New York time

My trades. I’ve exited my bear call options spread on XBI for 50% of maximum potential profit. The updated analysis can be seen here.

9:40 a.m.New York time

What’s happening now? The S&P 500 E-mini futures continued a halting decline, reaching a low overnight of 4029.25.

What does it mean? The decline that began on May 9 from 4238.25 on the futures, 4238.04 on the index, remains in its early stages. Like all market movements, it is a combination of rises and falls of ever-smaller degrees. By my principle analysis, the main line of movement within all of those fluctuations will be net down.

What’s the alternative? If the price reverses and moves above the May 9 high, then the rise that began March 4 from 3720.50 is still underway. By my alternate analysis, the main line of movement within the fluctuations would be net up.

What does Elliott wave theory say? The peak of May 9 marked the end of upward-trendingwave 5 of Minuette degree, which began on March 4. The decline that followed is a small degree wave 1, perhaps of Bitsy degree, in a new downtrend all the way up to Minuette degree. That downtrend is the initial stage of wave A of Minute degree within wave 4 of Minor degree, which will take months to play out.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its decline, slipping from the low 4100s to around 4060, in the initial wave of a downtrend that began on May 9. I’ve updated the chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures moved slightly lower in overnight trading, to 4095.50.

What does it mean? Yesterday’s analysis stands: The May 9 peak, 4238.25, ended the uptrend that began March 25 and kicked off a significant downward correction.

What’s the alternative? If the price reverses and moves above 4238.25, then the uptrend that began March 25 is still underway. The correction will eventually come, but a new high would move it down the road.

What does Elliott wave theory say? Under the principle analysis, we are seeing the 1st wave of Bitsy degree with a series of higher-degree 1st waves within an A wave of Minute degree. The whole unfolding structure is a 4th wave of Minute degree.

Under the alternative analysis, which becomes valid only if the price reverses to a new high, the present decline would be a small-degree downturn within uptrending wave 3 of Minor degree.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 spent much of the day trading in a narrow range, in the low to mid 4100s. I’ve updated the near-term chart. The analysis remains unchanged.

10:25 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply overnight, creating an opening gap on the S&P 500 index.

What does it mean? The power of the decline was sufficient to cast doubt on my analysis treating the May 9 of 4238.25 peak as part of an ongoing rise. The peak appears to have completed the uptrend that began on March 4 from 3720.50. A new downtrend has begun.

What’s the alternative? A sharp reversal to the upside and a new high would require another major re-analysis based on the premise that the rise from March 4 is still underway.

What does Elliott wave theory say? The rule that forced the recount is this: Wave 4 can’t move beyond the start of wave 1. If the analysis shows that happening, then it’s not a 4th wave.

In my recount, I see March 4 as marking the end of wave 4 of Minuette degree and the beginning of the 5th and final wave up of Minuette degree. It is that 5th wave that ended on May 9.

The May 9 peak also marks the end of a series of larger waves: Wave 5 of Minute degree within wave 3 of Minor degree. Minor degree 3 began on February 23, 2020 from 2191.86, the end of the crash early in the pandemic.

What follows will be a 4th wave correction at the Minor degree that will play out over the next few months. I’ve marked the initial decline from the May 9 peak as wave 1 of Bitsy degree, although at this point that’s a guess. It is the first movement down of wave A of Minute degree within wave 4 of Minor degree.

Here’s a big-picture chart looking back to 2018.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined sharply from the May 9 peak of 4238.25, suggesting that wave 3 of Bitsy degree is complete, and a wave 4 downward correction has begun. I’ve updated the chart.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly in overnight trading, to 4238.25, and then pulled back a little.

What does it mean? The uptrend that began May 4 from 4120.50 is still underway and may have completed the middle leg of its rise. The pattern suggests that there is still more upside ahead.

What does Elliott wave theory say? The rise from May 4 is wave 1 of Bitsy degree within wave 5 of Subminuscule degree. This is happening within wave 5 of Minuscule degree, which began on April 7 from 4056.50. Bitsy wave 1 will be followed by a downward wave 2 correction, probably a sharp one, and then an energetic 3rd wave rise, a shallow 4th wave downward correction, and a final 5th wave push to new highs, completing wave 5 of Subminuscule degree, its parent wave, 5 of Minuscule degree, and its grandparent wave, 3 of Submicro degree.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued pushing higher, reaching 4232.25 on the futures and 4238.04 on the index. No change in the analysis. I’ve updated the chart.

10:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to a new high, 4228.25 so far, in a renewal of an uptrend that had been interrupted by a brief correction.

What does it mean? The new high exceeded the prior high, 4211 set on April 29, and in so doing forced a recount of the principle analysis: The correction that began on April 29 ended on May 4, and on that date the final wave of the rise from April 7 began.

What’s the alternative? As always, identifying the magnitude early on in a market movement is a guess, because the movement lacks context. The magnitudes of waves in my analysis could well change as the uptrend progresses.

What does Elliott wave theory say? The high of 4211 on April 29 marked the end of wave 3 of Subminuscule degree and the beginning of a 4th wave correction. The correction took the form of three waves, each with three waves internally, making it a Flat pattern that ended on May 4 at 4120.50. The subsequent wave 5 of Subminuscule degree began and has so far carried the price to a high this morning of 4228.25 and climbing.

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SPDR S&P Biotech ETF (XBI)

Update 5/13/2021: I exited my bear call spread position on XBI 36 days before expiration, for a $0.50 debit per contract/share, a profit before fees of $102 per contract. Shares were trading at $120.40, down $5.19 from the entry level.

My decision to exit was based on the profit exceeding 50% of its maximum potential, an exit point that is mandated by my rules for trading options spreads.

Shares declined by 4.1% over seven days for a -216% annual rate. The options position produced a 97.6% return for a 5,319% annual rate.

I’ve updated the chart below.

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I have entered a short bear call spread on XBI, using options that trade for the last time 43 days hence, on June 18. The premium is a $1.01 credit per contract share and the stock at the time of entry was priced at $125.59.

The implied volatility rank (IVR) stands at 49.2%.

Premium:	$1.01	Expire OTM
XBI-bear call spread	Strike	Odds	Delta
Calls
Long	140.00	85.0%	18
Break-even	133.99	80.5%	23
Short	135.00	76.0%	28

The premium is 40.4% of the width of the position’s wing.
The profit zone covers a 6.7% move to the upside, with no limit to the downside.

The risk/reward ratio is 4:1, with maximum risk of $399 and maximum reward of $101 per contract.

Elliott wave analysis. XBI hit a peak of February 9 of $174.79 and began a downtrend that is now in its 3rd wave. I set the short call at $135, which is $9.41 above the entry price. The 3rd wave, typically the strongest in a trend, began on March 16 from $149.24. Upon its completion, the 3rd wave will begin a 4th wave correction. Fourth waves tend to be shallow, sideways-trending movements, and so my theory is that any correction will remain well below the $135 short-call strike.

By Tim Bovee, Portland, Oregon, May 6, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures rose to within 50 cents of the May 4 high and then resumed its downward trajectory, leaving my principle analysis intact. I’ve updated the chart.

12:50 p.m. New York time

My trades. I’ve entered a bear call options spread on XBI. The entry analysis may be found here.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded in a narrow range overnight as the price moved through the late stage of the beginning leg of a downward correction.

What does it mean? The correction, which began on April 29 from 4211, has so far reached a low of 4120, on May 4. The tentative decline that began yesterday a 4180 will carry the price below the April 29 low to complete the first leg of a larger correction to the downside.

What’s the alternative? It’s possible that the first leg of the larger correction has not yet reached its final decline. Instead, the upward countertrend within the larger downtrend may still be underway.

What does Elliott wave theory say? The larger downtrend is wave A of Bitsy degree within wave 4 of Subminuscule degree, the latter having begun on April 29. Within wave A, wave 5 of Subbitsy degree will carry the price below 4120.50, which was the end of wave 3 of Subbitsy degree. Once Subbitsy 5 is complete, the next step will be an upward movement, wave B of Bitsy degree, the middle wave of the Subminuscule wave 4 correction.

The alternative count has Subbitsy wave 4 underway, with Subbitsy 5 still in the future. A decisive move to the downside would confirm that Subbitsy 5 has begun.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 dropped sharply and recovered before resuming the decline in wave 5 of Subbitsy degree within wave A of Bitsy degree. I’ve updated the chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight as it nears an end to the first leg of a downward correction that began April 29 from 4211.

What does it mean? After the rise is complete, a decline will carry the price back down, most likely below 4120.50, completing the first leg of the correction.

What is the alternative? It’s possible to count the decline to the May 4 low of 4120.50 as completing the correction. If the rise carries the price above 4211, then the alternative count is correct.

What does Elliott wave theory say? Under the principal count, the overnight rise is wave 4 of Subbitsy degree within wave A of bitsy degree, which in turn is the first wave of a three-wave correction within wave 4 of Subminuscule degree. Under the alternative count, the fall to 4120.50 was wave C of Bitsy degree, completing wave 4 of Subminuscule degree, and the overnight rise is the beginning of wave 5 of Subminuscule degree.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined sharply today in the middle wave of a larger decline that began April 29. The price on the E-mini futures reached a low of 4120.50 and late in the day reversed to the upside. I’ve updated the chart, below, moving closer in on the chart and adjusting the count in light of the sharp decline, which was wave 3 of Subbitsy degree within wave A of Bitsy degree. The price reversal to the upside is wave 4 of Subbitsy degree.

Regarding the My Trades section below, the prospect SNAP has seen its implied volatility rank decline below the point where the trade would be worthwhile. So tomorrow, the search continues.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined to their lowest point since the April 29 high.

What does it mean? The decline appears to be near the end of the first leg of a downward correction, which will eventually be followed by a return of the uptrend that will carry the price to new highs.

What does Elliott wave theory say? The decline that began in Monday’s session is wave 5 of Subbitsy degree within wave A of Bitsy degree, which is the first wave of wave 4 of Subminuscule degree, which began on April 29 from 4211. Subminuscule 4 will most likely take the form of a Flat, and as a 4th wave it wouldn’t be unusual for it to extend in a compound pattern consisting of several corrective forms. Although it may not. There’s no guarantee either way.

These low-degree moves are unfolding within wave 3 of wave 5 of Minuscule degree, which began on April 7, and — working up — are within wave 3 of Submicro degree, which began on March 25 from 3843.25. That means there’s quite a bit of uptrend ahead for the patient, although the S&P 500 is presently in a downward correction.

My trades. By my rules today is the midpoint of the entry gateway for the options expiring June 18. The gate will remain open until May 11. Between trades I moved some of my options-trading funds into HYLB shares in order to capture a dividend, whose record date is tomorrow, May 5. I’ll hold off on entering my options position until May 6, when I’ll exit HYLB, freeing up those funds.

I presently have one (!) prospect that is both sufficiently liquid and has a sufficiently high implied volatility rank to be worthwhile; it is SNAP, and that will be my focus in prepping for my next position.

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