11:35 a.m. New York time

Little has changed from Friday’s analysis, and so I’m going to take a closer look at the alternative, which would kick in if the index rises above its high of February 19, which was 3397.50 on the E-mini futures. I said in Friday’s analysis that a break above that level would force a “rethinking of the entire analysis since February”. That raises the question, Is such an alternative even possible, within the rules of Elliott wave analysis? That’s the question I hope to answer this morning.

What’s happening now? The S&P 500 E-mini futures on Sunday set a higher high in the rise from March 22, at 3211.50, just one point above the prior high set on Friday.

What does it mean? There’s no clear indicator as to whether the correction of the decline from March is yet complete. So far the movement has retraced 84.8% of the decline.

What does Elliott wave theory say? The retracement is Primary wave 2 within Cycle wave 1, the early stages of a major decline that will eventually erase decades worth of market advance. It will have uptrends and downtrends within it, some of them quite significant, but the overall trend by this analysis will be down in a movement so large that the high school Class of 2020 will be grandparents before the major correction ends.

What is the alternative? If the Primary wave 2 price moves back above the beginning of Primary wave 1, the high set in February of 3397.50, then the whole major end-of-the-world-as-we-know-it crash gets tossed into the trash, and something else is going on. Is that even possible, given the devastating losses we’ve seen in a period that has stretched out to nearly four months?

It turns out that it is possible. The final leg up before the February crash began in 2009, at the low point of the Crash of 2007, which kicked off the Great Recession. On a chart of the Dow Jones Industrial Average, the decline so far is not outsized for a correction within Primary wave 5 of the rise since 2009. The Great Recession crash that ended a Primary wave 4 was bigger. The present decline so far has been in the ballpark of the Crash of ’87, a Primary wave 2 decline, or the downward corrections of the stagflation 1970s. And there’s sufficient ambiguity in the rise since 2009 to count the February peak a 3rd wave rather than a 5th, which would make the decline since February a Primary 4th wave correction.

If the hypothetical 4th wave correction is taking the form of an expanding triangle, then the B wave — the one we’re in now — would be expected to move above beginning of the A wave. The gotcha is that each of the five waves of the expanding triangle would have three subwaves, so I think it would take some creative wave counting to make this scenario work.

The sheer velocity, the power, of the decline in February steers me away from this alternative scenario. I’ll be shocked if the S&P 500 price exceeds 3397.50. But, as we near that point, it’s a possibility we must consider.

What about my trades? No options are in my account at present. My shares in SDS profit when the S&P 500 goes down and loses when it rises.

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 8, 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.