Live: Thursday, July 2, 2020

10:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have continued to rise, exceeding by a few points the length of the preceding downward move, in the direction of the dominant trend.

What does it mean? Usually, a movement in this position correcting the A 100% retracement in a correction at this point following the preceding wave.

Screen Shot 2020-07-02 at 7.33.57 AM
S&P 500 E-mini futures, 1-hour bars

What does Elliott wave theory say? A 4th wave generally ends within the 4th wave of lower degree in the preceding 3rd wave. That would have put the retracement at around a Fibonacci 38.2%. Instead, the 4th wave has retraced 100%. It doesn’t break a rule but does go against a guideline.

Internally, the rise from July 26 breaks down in to five waves, suggesting that a subwave of Minor wave 4 — a Minuette wave A, to be followed by a B wave to the downside and then a C wave to upside. Minor wave 2 was a zig-zag, and so Minor 4 is likely to be a flat. And yet, the first wave within a flat has three waves, not five. And no matter how hard I squint, I can’t manage to see fewer than five waves within the rise.

The chart in the Elliott wave framing is ambiguous, a not uncommon occurrence, especially in the corrective waves: Wave 2 and wave 4. So I’ll have to see how the subsequent decline plays out to gain certainty about this pattern.

Working this low-level degree, we’re trying to get a grip on the timing of things. The higher degrees have no ambiguity; The first wave within Primary wave 3 to the downside is underway, and it will be significant enough to cause what traditional analysts call a “capitulation”, when optimists lose hope and start pulling out of the market.

What about my trades? Unchanged. Staying out of options until Intermediate wave 3 to the downside begins. Holding shares until Primary wave 1to the downside is nearing completion.

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, July 2, 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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