Live: Tuesday, June 9, 2020

10:30 a.m. New York time

What’s happening now? The S&P 500 E-mini futures peaked at the end of the trading yesterday, at 3231.25 and then declined slightly.

What does it mean? The peak was accompanied by a decline in volume — often a sign that a trend is weakening. Also, the Relative Strength Index (RSI) declined this morning, falling below the 70 mark that divides overbought territory from neutrality for the first time since January 22. RSI is a metric that compares the rising and falling days adjusted for the magnitude of each, and a fall back into neutrality often will presage a significant decline. Certainly the January move did. It has since risen a bit above the 70 mark, but the trend for the daily continues to point down.

Screen Shot 2020-06-09 at 7.24.38 AM
S&P 500 E-mini futures, daily bars, with volume and RSI

What does Elliott wave theory say? At the peak we were in the final wave, upward trending Intermediate wave C, of the Primary wave 2 upward correction of downtrending Cycle wave 1, which began on February 19 at 3397.50.

The question now is whether yesterday’s peak marks the end of Intermediate C. The wave has risen 17.1%, which compares favorably with the 19% rise of the prior C wave in this compound correction. And Primary wave 2 has retraced 86.4% of  Primary wave 2, about what I would expect from an energetic 2nd wave. Combined with the declining RSI and volume, the evidence makes it plausible, although not certain, that Primary wave 3 has begun.

What is the alternative? The index could certainly reverse and continue rising in a whipsaw of the sort not uncommon in the markets. If it does, then we continue to face the possibility that what is now counted as wave 2 will move beyond the start of wave 1, possibly negating the idea that the rise that began in 1974 is in fact not yet over. I discussed the prospect in detail in Monday’s post.

What about my trades? No options are in my account at present. My main goal at this point is to figure when to re-enter so I catch the 3rd wave decline. Given the evidence so far, I’m not yet willing to commit. I’ll need to see signs of an energetic price decline before I make the decision. My shares in SDS profit when the S&P 500 goes down and lose when it rises. I’ll hang on for now. If the price decline, then the shares will return to profitability. If the price exceeds that start of wave 1, at 3397.50, then I shall grit my teeth and consider selling the shares for a loss.

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


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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