10:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures moved up to yet another higher high, 3108.25 so far, which is 32.75 points above the previous higher high set on Tuesday.

What does it mean? The upward correction that began March 22 continues. How close to complete it might be depends upon how we interpret the present leg up within that correction, which began May 27 at 2965.5

What does Elliott wave theory say? How close the index is to a reversal depends upon how we count the waves internal to the rise from May 27, which is Minor wave 5. Within that wave, honestly, the structure is a bit messy, with ambiguities that are common to the paths traced by the markets.

I count our present positions as being:

• Micro wave 3
• of Subminuette 3
• of Minuette 3
• of Minute 3
• of Minor 5
• within Intermediate wave C
• of the Primary wave 2 correction.

In other words, the middle wave of the Minor degree is stretching out quite bit. There are other ways of counting, but this one seems to best fit the form of the chart as of this moment. The sticking point is wave 3, which must never be the shortest of a five-wave impulse pattern. When a count shows it to be the shortest, then the count is wrong and standard practice is to move down a degree in order to make the 3rd wave length longer. This why Elliott wave analysis is more art than science.

What is the alternative? Within Minor wave 5, it’s possible that we’re seeing a 5th wave of of lower degree, which means the reversal is closer than my present count shows. And a reversal could well be a marker between the corrective pattern we see now and yet another corrective pattern in a compound structure.

What about my trades? No options are in my account at present. Given the timing difficulties with this correction, I’m starting to doubt whether time-dependent options are the best way to play this market at present. Or at least, if I do enter options positions, then I should hedge them tightly. My shares in SDS profit when the S&P 500 go down and lose when it rises, with no time dependencies, so that seems like a reasonable vehicle for trading, as long as I’m quick to respond to the Elliott wave analysis.

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, June 3, 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.