Live: Thursday, June 4, 2020

10:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures yesterday, throughout the day, kept bumping up high for the rise since March 22, pulling back after peaking at 3129.50. In the chart I’ve drawn the channel as though that peak were the end of correction to the upside, but the reality is that I can’t rule out a bit more upside remaining.

What does it mean? The rise has retraced 78.1% of the decline from February 19 to March 22. If there is a more rise remaining, it will be a fairly short movement, stopping short of 3397.50. If 3129.50 is indeed the peak of the rise, then the next move will be down. What I’ll be looking for is a drop that shows some commitment — the short of drop where you look at the chart and without analysis, say, Something has changed. A decline below 2760.25, where the present leg up of the correction, will increase the odds that the correction is over.

By the way, note the volume at the bottom of the chart, how much it has fallen off during the correction, a sign that the energy of the upward movement is fading.

Screen Shot 2020-06-04 at 7.36.08 AM

What does Elliott wave theory say? The meaning of the 3129.50 point depends upon how we interpret the internals of the wave that led to that peak: Intermediate wave C within the Primary wave 2 upward correction.

My count yesterday placed index nearing the end of Minute wave 3 within Intermediate C. If that’s correct then there will be a small pullback and then a final Minor wave 5 rise above that prior peak.

What is the alternative? I noted yesterday that I found the wave pattern to be somewhat ambiguous, and that the present position might be well Minor wave 5. If that’s the case, then 3129.50 could indeed mark the end of the Primary wave 2 correction. The resumption of the downtrend, Primary wave 3, will be energetic and without ambiguity as it pushes down to the lower boundary of the channel, almost certainly below 2000.

What about my trades? No options are in my account at present. I’m waiting for Primary wave 3 to begin. I’m holding shares in SDS, which profit when the S&P 500 goes down, and will continue to hold them through wave 3, perhaps adding to the position.

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.

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 4, 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.

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Based on a work at www.timbovee.com.