11:50 a.m. New York time 

The downtrend this morning suggests that Minor wave 3 is indeed underway. I’ve updated the chart, which also corrects the Subscripts and Degrees table to “Minute” for the {-2} subscript (replacing the incorrect “Minuette”, which is the {-3} subscript).

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are working their way down for the second consecutive day.

What does it mean? The small downtrend may be the beginning of a large downtrend, but it is not yet certain and it won’t happen immediately.

What does Elliott wave theory say? As the chart has played out, it has become clear that my degree labelling is one level too high. I’ve dropped things down, so that what I had labeled as Intermediate degree is now labelled as Minor degree.

The decline that began June 23 marks the beginning of the 3rd wave of minor degree within Intermediate wave 1 within Primary wave 3. The 3rd wave of Primary degree will be a major decline, signaled by the start of the 3rd wave of Intermediate degree. My earlier labelling suggested that the Intermediate 3rd wave is close, but the new labelling pushes it out into the future. Up next: Intermediate wave 1 to the downside reaches completion, perhaps a week or so from now, and Intermediate 2 corrects a significant part of the decline that began on June 8. Only then do we see the capitulation, as traditional traders term energetic declines, such as 3rd waves in Elliott wave theory.

What is the alternative? It’s possible that Minor wave 2 will extend into a complex pattern, which would push the start of Minor 3 further into the future. And for the long-term prospects, it’s always possible that my original labeling was correct, making the start of Intermediate wave 3 an event we’ll see sooner rather than later. The degrees don’t come with “You Are Here” signs, sadly.

What about my trades? I’m waiting for Intermediate wave 3 before I enter options positions on SPY. When I do, they’ll be structured as bear call spreads. I’m holding my shares of SDS, which moves inversely to SPY.

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 24, 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.