9:50 a.m. New York time

What’s happening now? The E-mini S&P 500 futures continued their rise as the end of the upward correction that began March 22 mounts a final push before it reaches its end.

What does it mean? The upward correction will be followed by a renewed decline that will carry the price down beyond 2174, most likely significantly so.

What does Elliott wave theory say? So far the rise, Primary wave 2, has retraced a bit more than 61.8% of the decline that began on February 19, a Fibonacci level that is often the stopping point for trends, although not always. The rise reached a peak this morning, as of this writing, of 3019.75. The rise will fall short of 3397.50, the beginning of the decline.

Typically in a bear market 2nd wave the public mood reaches a point where the consensus is that the market has turned bullish.

I don’t see that happening yet. For example, the Advance/Decline line, a metric that compares advancing stocks to declining stocks. At the outset of the bear market, on February 19, the A/D line was 92,432. The low point so far was 69,753 and it presently sits at 80,870. Yes, optimism is returning, but without a lot of enthusiasm. That suggests to me that there is more upside to Primary 2 before Primary 3 comes along and dashes all bullish hopes.

What is the alternative? The present Primary wave 2 has met all of the requirements of Elliott wave theory, so whatever the metrics of the public mood show, it could reverse and hand off to a declining Primary wave 3 at any time and be within the norms of Elliott.

What about my trades? No options are in my account at present. Today is the first day of my window for entering positions on options expiring July 20. I’m passing for now. The near-term trend remains up, the larger trend remains down, and I need both to be down before I commit.  My shares in SDS profit when the S&P 500 goes down and loses when it rises. They are, at present, losing.

Learning and other resources. Elliott Wave International has long been the leading analytical house based on Elliott wave theory. They make available a number of free educational materials and other resources, in addition to their for-pay subscriptions.

I recommend two books, both by people associated with EWI.

First, Elliott Wave Principle by Robert Prechter and A.J. Frost is the book that, along with Prechter’s analyses, that created the revival of Elliott wave theory. I first read it in 1984, and it has had a profound influenced on my thinking about markets ever since.

Second, I’ve found Visual Guide to Elliott Wave Trading by Wayne Gorman and Jeffrey Kennedy, both of EWI, to be a useful book that relates Elliott wave theory to practical trading. The authors are hands-on Elliotticians, and for an active trader, that’s exactly what’s needed — less theory and more how-to. The first chapter of the book gives a very nice thumbnail run down of what Elliott wave theory is all about.

Terminology. Here are some links to information about some of the technical jargon I use.

• Elliott wave analysis
• Fibonacci level

Charts. On my charts, waves have a subscript showing the degree above or below the Intermediate degree. Here are the subscripts and the degree each represents:

• {+3} Supercycle
• {+2} Cycle
• {+1} Primary
• No subscript: Intermediate
• {-1} Minor
• {-2} Minute
• {-3} Minuette

By Tim Bovee, Portland, Oregon, May 26, 2020

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.