Tuesday, January 12, 2020

3:30 p.m. New York time

I have updated IWM Analysis with results, and updated the S&P 500 chart, below, half an hour before the closing bell.

2:50 p.m. New York time

I’ve exited my short bear call options spreads on IWM, for a loss. I’ll update the entry analysis with results.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue a shallow correction that began January 8. The price is presently working through the middle wave of the three-wave pattern.

What does it mean? The end of the downward correction will be followed by a push to a new high.

[S&P 500 E-mini futures at 3:30.m., 30-minute bars, with volume]

What does Elliott wave theory say? The correction is wave 4 of Micro degree within wave 5 of Minuette degree within wave 3 of Minuette degree. The present subwave is wave B of Submicro degree within a Flat structure. In Flats, wave B must retrace 90% of the preceding wave A.

My trading strategy. My short bear call options spread on IWM remain about 17 points above the profit zone. I shall make a decision about when to take the loss.

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Monday, January 11, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures continue their downward correction at a small degree. Wave A of Submicro degree is complete and the price is working through Submicro wave B of a three-wave pattern. I’ve updated the chart, below.

I shall continue to hold my losing IWM options, whose last day of trading is Friday, in the hope of a wave C decline on Tuesday.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to drop from the high of January 8.

What does it mean? The decline marks the first steps in what will likely be a shallow correction that will be followed by another high, and then a significant reversal.

What’s the alternative? If the price reverses today and moves above 3824.50, then the correction has not yet begun. The description of what will follow the correction stands in either case.

[S&P E-mini futures at 3:30 p.m., 30-minute bars, with volume]

What does Elliott wave theory say? I’ve marked up a near-term chart to trace course of the S&P 500 since late December. The count clearly shows that the January 8 was was the end of wave 3 of Micro degree. Within it, the peak marks the end of wave 5 of the Submicro degree. The correction now underway is a 4th wave of Micro degree. The typical 4th wave is a sideways correction, a Flat pattern in the parlance of Elliott wave analysis, with an internal structure of three wave — A, B and C — each with three subwaves.

My trading strategy. I’ll be looking again at my IWM options and make a decision on whether to exit or hold.

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Friday, January 8, 2021

3:30 p.m. New York time

The S&P 500 E-mini futures are about eight points below their high of the day. I’ve updated the futures chart from this morning.

2:25 p.m. New York time

I mentioned this morning that I would make a decide whether to exit my short bear call options spreads on IWM today. The position expires on January 15, so by my rules I need to be out today or Monday.

Here are some numbers that frame the decision. The maximum loss calculated at entry was $1.08 per contract at expiration. The profit zone is a share price of $192 or below, marked on the chart with an alert. The present cost of exiting is $4.58 per contract.

(Apologies for the size of the chart. WordPress has gone into one of its recurring spells of graphs madness and won’t let me resize the image for a more normal presentation.)

[IWM at 2:25 p.m., 3-hour bars]

If I exit now, the loss will be more than four times what I would pay at expiration. So — no brainer — I should continue to hold the position. The risk to holding is that the position could be assigned, leaving me with 100 short shares of IWM in my account. Not a tragedy but an inconvenience.

As IWM falls off from today’s high, 209.77, it could very well mean that wave 5 of Subminuette degree and its parent, wave 3 of Minuette degree have ended, and we have begun a Minuette wave 4 downward correction, which would benefit my position.

So, decision time. I shall continue to hold position until Monday, and decide then whether to exit or hold longer.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise overnight, to a high of 3817.75.

What does it mean? The rise is part of the end game of the upward movement that began October 30 from 3225. The current high is about 50 points below the lowest of three Fibonacci retracement levels that provide price targets. After the uptrend is complete, I expect a shallow correction and then another upward movement.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? The rise that began October 30 is wave 5 of Minute degree. Internally, it is on wave 3 of Minuette degree, which in turn in wave 5 — the final wave — of Subminuette degree. Minuette 3 will be followed by a 4th wave correction, probably shallow and possibly time-consuming, if it turns into a compound structure.

My trading strategy. My short bear call spread options on IWM are in a losing position, with expiration only a week away. The question is, do I exit now or do I wait until Monday. I’ll make a decision on the question before the closing bell.

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Thursday, January 7, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 price inched higher, reaching 3803.25 on the futures as the closing bell approached. I’ve updated the chart, below.

11 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to within 65 points of the lowest of three Fibonacci retracement levels are my price targets for the rise that began in February. It has so far reached 3,800 as of this post.

What does it mean? Completion of the rise will mean that the middle wave, usually the strongest of the five-wave structure, has reached an end and will be followed by a decline, perhaps a shallow on.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? Wave 3 of Minor degree began on February 23. The subwaves, from larger degree to smaller, are wave 5 of Minute degree, wave 3 of Minuette degree and wave 5 of Subminuette degree.

Completion of Minor wave 3 will be followed by Minor wave 4, the wave position that tends toward a shallow structure and one that link several corrective patterns together in a time-consuming compound correction.

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Wednesday, January 6, 2021

3:30 p.m. New York time

30-minutes before the closing bell. The S&P 500 high set earlier today still stands. I’ve updated the chart, below.

2:05 p.m. New York time

The S&P 500 exceeded the January 4 high, which means that my alternative analysis has come into play. My expectations for subsequent moves, once Minuette wave 3 is complete, are unchanged. I’ve updated the chart.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures briefly peeked above the upper boundary of the Diagonal Triangle that has traced the course of the index and its derivatives since December 2018. The high, after the closing bell yesterday, was 3734, which is about 40 points below the January 4 turning point.

What does it mean? The S&P 500 is in the early stages of a declining correction that will carry down, probably, to the low 3500s.

What is the alternative? I won’t be entirely confident that the January 4 peak, 3773.25 on the futures, is in fact end of the rise since October 30 until I see the price push below the December 21 low, 3596. Also, even if the correction has has begun, it may well turn out to be a shallow one.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? The January 4 peak marked the end of wave 3 of Minuette degree and the beginning of wave A of Subminuette degree within Minuette wave 4. The A wave will typically have five subwaves, at the Micro degree.

All of this is happening within rising wave 5 of Minute degree within rising wave 3 of Minor degree.

Fourth-wave corrections tend to be sideways moves and often will extend into compound patters. Minuette wave 4 may with us for awhile. It will be followed by Minuette wave 4, which may well rise to the 3860s, and as high as the 4150s.

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Tuesday, January 5, 2021

3:45 p.m. New York time

15-minutes before the closing bell. The S&P 500 E-mini futures moved slightly higher above the upper boundary of the Diagonal Triangle. I’ve updated the chart, below.

11:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures were trading along the upper boundary of the Diagonal Triangle that began in December 2018.

What does it mean? I count the movement as still having some upward potential remaining before hitting one of the three Fibonacci levels marked on the chart..

[S&P 500 E-mini futures at 3:45 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? Now underway, wave 5 of Subminuette degree within wave3 of Minuette degree.

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Monday, January 4, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 and derivatives reversed from its peak and dropped 20 points. The E-mini futures peaked at 3773.53 early in the day and then fell to a daily low, so far, of 3652.50. The chart includes the Minor-degree Fibonacci retracement levels for the futures; the Fib’s use in setting targets was discussed below as it applies to the index.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

9:45 a.m. New York time

What’s happening now? On the first trading day of 2021, S&P 500 index and E-mini futures continued their rise. The index hit an early high of 3769.99 and the futures, of 3773.25.

What does it mean? The index and its derivatives are on the final leg of a near-term rise that began on December 21, and over the longer term, of a rise that began on February 23.

[S&P 500 index at 9:40 a.m., 3-hour bars]

What does Elliott wave theory say? As the price keeps bouncing up the mountain, let’s make an attempt to establish the peak. One method that’s part of Elliott wave analysis is the Fibonacci level. Often, a third wave will be longer than the preceding third wave by a number in the Fibonacci sequence, with 38.2%, 50% and 61.8% being the most common peaks beyond the length of wave 2.

Looking at the Minor level on the index chart, wave 2 was 1,201.66 points long. That gives us three possible peaks if one of them matches a common Fibonacci level:

  • 3,852.55 at 31.8% beyond the length of wave 2.
  • 3,994.35 at 50% beyond.
  • 4136.15 at 68.2% beyond.

I’ve marked the three levels on the chart, above. Now, the reality of Fibonacci levels is that they are rarely exact. There’s always a bit of fudge regarding where the price will land. So I’ll think of the target as being somewhere between 3,850 and 4,150.

My trading strategy. My short bear call options spreads on IWM expire on January 15, which by my rules means, win or lose, I’ll exit the position on Monday of next week, on January 11. IWM at present is trading at 196 plus change. The top of the profit zone is 192, so the position is a losing one at this point.

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Farewell, 2020

After the closing bell

In the end, the S&P 500 and its derivatives bumped up slightly to set a new high. To me, it looks like the beginning of wave 5 of Micro degree within wave 5 of Subminuette degree.

[S&P 500 E-mini futures, 3-hour bars, with volume]

Stepping back to a broader view, we can see how far along the price has come since the present Diagonal Triangle began on December 26, 2018. The Triangle wave 5 of Intermediate degree, and each bounce up or down to a triangle boundary is a Minor wave. By my count, the S&P 500 is working on wave 5 of Minor degree. A Diagonal Triangle has five waves internally, so the end is near.

[S&P 500 index, daily bars]

And finally, the long view, showing how we got to where we are: Intermediate wave 5 within Primary 5 within Cycle 5 within wave 5 of Supercycle degree. Looking back at the close-up chart at the top, I’m struck by the fact that the whole house of cards stretching back 91 years is poised to come tumbling down when today’s Submicro wave 5 within Micro 5 within Subminuette 5 within Minuette 5 within Minute 5 within Minor 5 reach an end. Perhaps even next year.

[Dow Jones Industrial Average, quarterly bars]

Of 2020, I doubt that any of us can say it was pleasant or easy. But when I look at this long-view chart, honestly, all of the crashes and crises and Sturm und Drang we’ve seen in 2020 — this year of roughhouse politics and plague — in the grand sweep of history seem fairly small in their impact on the markets. After all, we’ve been in an uptrend since the Black Tuesday crash of October 29, 1929, and that uptrend, despite all that has happened since, remains intact as 2020 comes to an end.

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

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Thursday, December 31, 2020

3:30 p.m. New York time

Half an hour before the closing bell. We’re ending the year with a seasonally boring session, as the S&P 500 index and its derivatives barely budged. The tiny upward hook at the right extremity of the chart might, just might, be the beginning of wave 5 of Micro degree, which when it is complete, will also mark the end of wave 5 of Subminuette degree and wave 3 of Minuette degree. I’ve updated the chart below.

Happy New Year, fellow traders!

9:50 a.m. New York time

Friday. Markets will be closed globally on Friday for the New Year’s holiday, including New York, London, Tokyo and Sydney.

What’s happening now? The S&P 500 E-mini futures continue a lazy path along the upper boundary of the Diagonal Triangle that began in December 2018 and since then has defined the boundaries of the index’s price perambulations.

What does it mean? It’s a holiday week, so honestly, it means very little. The most recent high was set two days ago at 3747.25. If that’s the end of the upward move that began 10 days ago, then the price will decline, into the 3200s and then, in the winding way of market prices, even lower.

What is the alternative? The price could still go a bit higher, but the upside potential is limited.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? The December 29 high could mark the end of wave 3 of Minuette degree and the subwave 5 of Subminuette degree. It seems more likely to me that the present doldrums is a 4th wave of Micro degree within Subminuette 5, which provides room for a 5th wave rise at the Micro level once the wave 4 correction is complete.

All of that is happening within Primary wave 5 of Intermediate wave 5 of Minor wave 1 of Minute wave 2

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Wednesday, December 30, 2020

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continues to stay within the confines it had established in overnight trading. I’ve updated the chart, below.

10:05 a.m. New York time

What’s happening now? The S&P 500 E-mini futures remain within yesterday’s range, trading in a narrow band overnight and in the first half hour after the opening bell.

What does it mean? The slight decline from Tuesday’s high, 3747.75, could be the first tentative steps of a correction, setting up for a final push to a new high.

What is the alternative? It could be the holiday doldrums. Volume and volatility contract near year’s end as trader’s globally take a holiday.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]

What does Elliott wave theory say? The rise from 3596 on December 21 appears to be a 3rd wave of Submicro degree, suggesting that there’s a bit more upside to go.

Read More »