Live: Friday, June 26, 2020

10:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are on the decline this morning, part of the middle wave of a downward movement within a larger upward correction that began June 25, all of that happening within a larger downward movement that began June 8.

What does it mean? The present downtrend will be followed in short order by a rise that may wrap up the present upward correction. Although, not necessarily. See the alternative below.

Screen Shot 2020-06-26 at 7.22.16 AM
S&P 500 E-mini futures, 30-minute bars

What does Elliott wave theory say? I posted a chart of Minor wave 1 down on Thursday, and of the entire Cycle degree decline from February 19 on Tuesday. Just imagine a bit of squiggly added to the right end and you’ll be caught up at those levels.

Today I want to focus close in, on Minor wave 4, which began on June 25. Fourth waves are tricky beasts. They tend to be shallower that their correction companion, the second waves. They also tend to expand into complex compound patterns that always leave me more than a little frustrated. If I could just squint my eyes and skip all 4th waves, I would be happy in my Elliott wave analysis. But such avoidance cannot be, so let’s move forward.

As I count the waves, the S&P 500 has completed the first wave up, a Minute A wave, within this upward Minor 4th correction, and begun the subsequent Minute B wave to the downside. Once the B wave is complete, the price will rise again in a Minute C wave, sketched on the chart in red, completing the Minor 4th wave correction.

Next comes the Minor 5th wave, which will carry the price below 3000 and complete the 1st wave of Intermediate degree, which will be followed by a 2nd wave correction of the Intermediate degree.

What is the alternative? The Minute C wave, rather than completing the 4th wave, might instead usher in an X-wave separator that will be followed by another corrective pattern. It’s not at all unusual. If that turns out to be the case, it makes no difference to the fact that Minor wave 5 will begin after the correction. It just won’t be as soon as it would be under a simple form 4th wave.

What about my trades? The Intermediate 1st wave will be followed by a 2nd wave correction of the same degree. It is the end of that 2nd wave correction that I hope to catch with some bear call spread options trades on SPY. As I’ve noted before, I’ll continue to hold my SDS, which inversely to SPY, during these low-level corrections.

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 26, 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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