9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have been tracing a sideways course since June 16.

What does it mean? The chart has become ambiguous. Either the upward correction is still underway or the next downward move has begun. If the index is still correcting, then it will stay below 3231.25. If the decline has begun, then it will  pick up momentum as it falls, eventually, by 1,000 points or more.

What does Elliott wave theory say? On the chart I have wave 2 of Intermediate degree ending on June 16 at 3156.25. That analysis means that Intermediate wave 2 lasted one day, which is quite short for that degree. If wave 2 is still underway, then it is in its 8th day, which seems about right for Intermediate degree.

 

What is the alternative? The beginning of Intermediate 3 has yet to be confirmed by a drop below the end of Intermediate wave 1, at 2923.75 on June 15. Absent a move below that level, it remains possible — probable? — that Intermediate wave 2 is still underway.

What about my trades? I intend to enter a bear call spread position on SPY when I gain some clarity regarding the start of Intermediate wave 3. I shall continue to hold my shares of SDS, which rise when the S&P 500 falls.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures has begun the middle portion of a significant decline, part of the mid-decline of a larger trend. I.e., this fall will have legs.

What does it mean? The upward correction of the crash beginning February 19 ended on June 8. The decline that has kicked off on June 16 will persuade all doubters that, yes, it’s real.

What does Elliott wave theory say? The 3rd wave of Intermediate degree began its downward trek on June 16 from 3156.25. So far, in five calendar days, it has fallen by 4.1%. This is happening within the wave of higher degree, Primary wave 3. Two 3rd waves in combination tend to have a lot of energy in the direction of their trend.

What is the alternative? It is possible, barely, that the 2nd wave of Intermediate degree is still underway. If so, it is in its final wave — a C — and will soon begin the Intermediate 3rd wave decline. A decline below 2923.25, the start of Intermediate wave 1, will eliminate this alternative.

What about my trades? This is the point where I start to considering specific entry points for bear call spread options positions. At present the SPY, which tracks the S&P 500, is in a lower-degree uptrend. My entry point will come after that, as the market starts to show some downside momentum. Tomorrow, perhaps? My shares in SDS profit as the S&P 500 falls, so I’ll hang on to them.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have begun the final leg up in the upward correction that began June 15 at 2923.75.

What does it mean? The end of the upward correction will be the beginning of a major decline that will eventually carry the price down to around 2000 or below.

What does Elliott wave theory say? The current wave up is a C wave of Minor degree. C waves often are the same length as the preceding A wave, which in this case was 277 points. Add that to the starting point of Minor C — 3064.50 on June 17 — and that gives a target of 3284.25 as the end of Minor wave C and also of Intermediate wave 2.

But 3284.25 violates a rule of Elliott wave theory: A 2nd wave cannot move beyond the start of wave 1, which in this case was 3231.25 on June 8. So 3231.25 is the maximum rise allowed under the present count.

What is the alternative? I’ve been writing this a lot lately, but the alternative is a move beyond 3231.25, which destroys the entire count since February. I don’t expect it to happen.

What about my trades? Minor wave C is in Minute wave 3 out of five waves total, so it’s time to think about how best to get back into options once Minute wave 5 begins. As of today the monthly options expiring July 17 are 28 days away, just seven day’s before I exit winning options positions. The monthlys expiring August 21 have 63 days left. The ideal midpoint is 45 days, so August is 18 days before that point and July is 17 days after. Wave C may have another day or two to go, so the August options seem to be the best choice.

After Intermediate wave 3 begins, there’s still value in waiting to enter. The Minor 1st wave of Intermediate 3 will be followed by a wave 2 that will retrace a significant part of that 1st wave. So, perhaps best to wait until late in Minor 2 so I can catch Minor 3 of Intermediate 3.

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9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly in overnight trading in and then took back part of the upward movement as it traces through the middle portion of an upward correction within a larger downtrend.

What does it mean? The early morning decline has retraced exactly down to the 38.2% Fibonacci level. If that is in fact the end of the middle portion of the correction, then the next move we be a correction finale to the upside, ending above 3150.75 but below 3231.25.

What does Elliott wave theory say? Whether the middle portion of the correction — a B wave of Minor degree — is in fact complete remains ambiguous. In the Zigzag pattern, B waves tend to retrace between 38% and 79% of the preceding A wave, so the present downward B-wave correction within an uptrending 2nd wave correction of Intermediate degree may in fact be complete. But it could still decline by quite a bit and remain true to the norms of B waves in Zigzags.

In either case, once the Minor C wave reaches its end, it will be followed by an Intermediate 3rd wave decline within a Primary 3rd wave decline. In Elliott wave analysis, 3rds waves tend to be single-minded and powerful as they pursue their trend. So after C look for a significant decline.

What is the alternative? The usual: A move 3231.25 would be the end of the world as we know it, at least insofar as the present Elliott wave analysis goes. It would trigger a full reassessment of my count since February 29.

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9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue to trace out a decline from the June 8 peak of 3231.25. At present it is undergoing a small correction to the upside that has a high likelihood of remaining below 3250.

What does it mean? The price is near the top of the channel. When the decline resumes, the price will drop, fairly rapidly I would think, down to the channel’s lower bound in the low 2100s.

What does Elliott wave theory say? The correction is Minor wave 2 to the upside within Intermediate wave 1 to the downside within Primary wave 3 to the downside within Cycle wave 1 to the downside. Within Minor 2, I think Minute wave A to the upside is complete and the price is beginning Minute B, a small downward correction.

 

 

What is the alternative? Primary wave 2 could still be underway, although it’s potential for a further rise is seriously constrained: It cannot move above the February 19 high, 3397.50, without forcing a re-analysis of everything that has happened in the market since then.

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10:10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue rising, nearing the 78.6% Fibonacci retracement point. Since the upward correction began on June 15, only yesterday, the price has risen by 8%, to a correction peak so far of 3156.25

What does it mean? Soon, perhaps today, the price will reverse to the downside, the next step in the upward correction, and then will again rise to set a new high within the upward correction, while staying below 3231.25, the price from which the downtrend began.

 

What does Elliott wave theory say? The S&P 500 is within the 5th subwave of a Minor wave A, the first wave of what is probably going to turn out to be a zigzag pattern. The next step will be three subwaves down, the Minor B wave, to be followed by a 5-wave movement up, the Minor C wave, which in all likelihood will complete Intermediate wave 2 within Primary wave 3. Following Intermediate 2 comes Intermediate wave 3, which will carry the price down to new lows since the June 8 peak.

 

 

What is the alternative? A move above 3231.25 would for a rethinking of the count since June 8, when Primary wave 3 began.

What about my trades? I’m out of options and am staying out for now, as I wait for Intermediate wave 3 to begin. I’m holding on to my SDS shares, which move the opposite of the S&P 500, as I wait for the last stages of Intermediate wave 3.

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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.

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9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined to 2992.25 at the end of the day Thursday and then bounced back, retracing 24% of the decline that began June 8.

What does it mean? The upward move from late yesterday is a correction within the larger downtrend. Once it is complete, the downtrend will resume with a great deal of power.

What does Elliott wave theory say? I’ve moved the wave degrees on yesterday’s chart up one, and it might well change against as Primary wave 3 plays out its downward course. I’ve also superimposed the Fibonacci retracements. The present correction is a 4th wave of Minor degree within the 1st wave of Intermediate degree. Fourth waves tend to be on the shallow side. I’ve seen many halt around the 38.2% Fibonacci level. Often the 4th will end within the 4th subwave wave of the 3rd subwave, which would be a between a 50% and a 61.8% retracement. Neither would be outside the mainstream of 4th waves and would put the price around 3140.

I don’t want to lose sight of the fact that all of this detail is playing out within the 1st Intermediate wave of the 3rd Primary wave. The Primary wave 1, beginning in February, lasted 32 days and declined by 36%. The present Primary wave 3 so far has lasted four days and declined by 7.4%. Within Primary wave 1, Intermediate wave 1 lasted nine days and fell by 16%. As the start of the crash it was exceptionally rapid. Such a decline in the present Intermediate wave 1 would bring the index’s price down to 2687. If Primary wave 3 were to equal Primary 1, then it would drop to below 2008.

We have far more to distance to cover in this downtrend, even at the Primary level, which is a lower degree, considering that that correction stretches all the way up to the Grand Supercycle degree, three levels above Primary.

What is the alternative? I have no alternatives at this point.

What about my trades? Having entered my first options position of Primary wave 3 (and posted an analysis), my next decision is when to enter another. I want at least three days between entries (totally arbitrary), which pushes the decision into next week. My inclination at this point is to wait for the Minor wave 2 correction to the upside within Intermediate wave 3.

I shall hold on to my existing position through the present Minor wave 2 correction.

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SPDR S&P 500 ETF Trust (SPY)

Lot 2020-15

Update 6/15/2020: I exited my short bear call spread on SPY for 54.5% of maximum potential profit. The debit at exit was $0.30, compared to an entry credit of $0.66, with shares trading at $297.50, down from $309.38 at entry.

SPY declined steadily after I entered the position on June 11, with the implied volatility rank rising to 47%, which is 13.7 points above its entry level.

I made the entry and exit decisions based on Elliott wave analysis. SPY was in the middle of Minor wave 3 within Intermediate wave 1 of Primary wave 3 at the time of entry. At exit it was in Minor wave 5 and possibly nearing an end.

Shares declined by 3.8% over four days for a -13% annual rate. The options position produced a return of 23.3% for a +10,950% annual rate.

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I have entered a short bear call spread on SPY, using options that trade for the last time 36 days hence, on July 17. The premium is a $0.66 credit per contract share and the stock at the time of entry was priced at $309.38.

The implied volatility rank (IVR) stands at 33.3%.

Premium:	$0.66	Expire OTM
SPY-bear call spread	Strike	Odds	Delta
Calls
Long	333.00	86.0%	18
Break-even	328.34	84.0%	20
Short	329.00	82.0%	22

The premium is 33% of the width of the position’s wing.

The profit zone covers a 6.1% move to the upside.

The risk/reward ratio is 5.1:1, with maximum risk of $334 and maximum reward of $66 per contract.

By Tim Bovee, Portland, Oregon, June 11, 2020

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11:25 a.m. New York time

I’ve entered a short bear call options spread position on SPY and have posted the analysis.

9:55 a.m. New York time

Big picture: What has happened since February, when the market decline began.

 

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have begun a major decline, ending a rise that began on March 22. The S&P 500 exchange-traded fund SPY began the day with a -2.4% opening gap. The Relative Strength Index (RSI), which had peaked in overbought territory, at 74.27 on June 8, and at the opening bell stood at 58.44, further evidence that a significant decline has begun.

What does it mean? The decline likely will be the longest and the most energetic downtrend of the bear market that began in February, working its way down within a channel whose lower boundary today stands at about 2090 and in each subsequent day will become lower each subsequent day.

What does Elliott wave theory say? By my analysis Primary wave 2 to the upside ended on June 8, at 3231.25, having retraced 86.4% of Primary wave 1, which began February 19, kicking off what I expect to be a bear market of epic proportion. We are now in Primary wave 3, and so far the chart shows three waves to the downside at a low degree, which I’ve labeled as the Minute wave 3. Whether that’s a degree too high or too low will become apparent as the parent wave, Intermediate 1, traces its course.

What is the alternative? Head fake. Whipsaw. The most frustrating part of trading. It is still possible that we are seeing yet another countertrend correction within uptrending wave 2. If that’s the case, then we have more upside ahead. If the price exceeds 3397.50, then a strict rule of Elliott wave theory — a 2nd wave must not move beyond the start of the preceding 1st wave — has been broken, and the entire count since February must be reassessed. (See my June 8 post for a discussion of how that might go.)

What about my trades? Finally, it’s time to consider re-entry. I held my shares of SDS (an inverse fund based on the S&P 500) through the Primary 2nd wave, and I shall continue to hold them as the 3rd wave decline brings them back to profitability. they I’m waiting for an entry point for options trades. No options are in my account at present. I’m continuing to hold my shares in SDS, which profit when the S&P 500 goes down.

Options are trickier. My ideal entry point is 45 days before expiration. The July 17 monthlies expire in 36 days, 11 earlier than the ideal, and the August 21 monthlies expire in 71 days, or 26 days later than the ideal. So if I were to go today, I would use the July options series, but would space out my contracts to gain some safety through time diversification. My preference is for 10 days either side of the ideal 45 days — 35 to 55 days. So the timing isn’t perfect.

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