« April 2020 »

IVolatility Trading Digest™

Volume 20 Issue 15
Elliott Wave Update [Charts]

Elliott Wave Update [Charts] - IVolatility Trading Digest™

The COVID-19 news seems slightly less distressing and crude oil prices may stabilize if OPEC+ can reach a production reduction agreement. Governmental fiscal support measures enhanced by the Federal Reserve including more asset categories in their support efforts including corporate bond ETFs and even selected Junk bonds, added needed liquidity. Our last look at the S&P 500 Index showed it starting a bottoming process that could develop into a classical Elliott Wave pattern. The Market Review includes a chart updating the progress.

Review NotesS&P 500 Index (SPX) 2789.82 gained 301.17 points or +12.10% last week after last Monday's 175.013 point gain ended a potential rising wedge with its threat of a much lower measuring objective.

An Elliott Wave and Fibonacci perspective,


After bottoming at 2192 on March 23, creating an impulse 3-wave, it quickly rebounded, formed a potential rising wedge that ended with last Monday's gap up opening. Thursday's intraday high at 2818.57 slightly exceeded the 50% retracement from the low at 2793 shown in the chart above. Should it stall in this area it would be tentatively labeled the Elliott 4-wave. However, since the current momentum remains positive the Fibonacci 62% ratio at 2937, becomes the next target for a potential 4- wave retracement label.

Review NotesCBOE Volatility Index® (VIX) 41.67 declined 5.13 points or -10.96% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, declined almost the same, -5.10 points or -12.13% ending at 36.94.

The spike up to 77.15% on Monday March 16, the day SPX declined 324.89 points, will likely be the top for this market decline as regression to the mean seems well underway having already retraced about two-thirds of the advance.


VIX Futures Premium

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts as of last Friday.

With only three days (two trading days) until April expiration, the day-weighted premium between April and May allocated 15% to April and 85% to May for a premium of -10.16% and - 6.57% using the alternative volume weighted method before April futures expire Wednesday. Still in the bearish red zone, but improving.


The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month futures contract converges with the VIX at the next futures expiration on Wednesday April 15. The position of the futures curve relative to the VIX, as measured by the premium, makes a good sentiment indicator.

For daily updates, follow our end-of- day volume weighted premium version located about halfway down the home page in the Options Data Analysis section on our website.

Big Data? In options, we are Big Data!
For a comprehensive review and reminder, check this out
Options: Observations of a Proprietary Trader  


Until SPX implied volatility returns to around 20%, option selling strategies remain favorable; especially those with limited and defined risk such as Iron Condors and Short Put Spreads as well as short put on stocks with the intention of acquiring them.

As for long stock or ETF positions, consider closing collars and put spread hedge if SPX continues above the 50% retracement level at 2793.

Relying too much on Elliott Wave counts creates a problem since they are best identified in hindsight but they do provide a good framework for analysis. For example, if SPX continues above the 50% retracement level at 2793, heading toward the 62% Fibonacci level at 2937, further advances reduces the probability that the 4th wave will form anytime soon. In addition, other indicators like improving market breath, junk bonds, and declining options implied volatility confirm improving sentiment. Add in unprecedented fiscal actions to support the economy, along with an extremely accommodative Federal Reserve, less dour COVID-19 news and an OPEC+ agreement all support the view that the SPX could continue advancing beyond 2793.


The rebounding S&P 500 Index reached the 50% retracement level consistent with an Elliott 4-wave but may continue even higher enough challenge the 62% Fibonacci ratio and beyond since market breadth, junk bonds and declining option implied volatility greatly improved market sentiment. Some clam this bear market ended last week and they could be right.

Actionable Options™

We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.

“The best volatility charts in the business.”

Next week will again feature the S&P 500 Index as it rebounds from the March 23 low at 2192.

Finding Previous Issues and Our Reader Response Request


All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on our website homepage.

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The 50% level you are referring to is of the whole decline. Based on how you marked your Elliott Waves - S&P have already retraced more than 61.8% of the third wave. Decline was a three wave correcting structure- new highs ahead.

Posted by Simon on April 13, 2020 at 10:02 PM EDT


Thanks for your comment and astute observation. Your right we were using the total decline from the intraday high to the intraday low. It does look stronger based on only on the third wave.


Posted by Jack on April 14, 2020 at 05:16 PM EDT

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