Live: Monday, July 6, 2020

10:20 a.m. New York time

Over the weekend I posted a big-picture look of the market uptrend from 1974 that got us to the February peak. The essay, “How We Got Here“, attempts to make a case for the February decline being a major reversal to a high-magnitude downtrend rather than a correction within a continuing uptrend.

What’s happening now? Contrary to my conclusion on Friday, the S&P 500 E-mini futures still had some upside left, by about 16 points.

What does it mean? The upward movement that began March 22 may have completed its correction of the decline that began February 19, opening the path for Minor wave 3 within Intermediate wave 1, both to the downside.

Screen Shot 2020-07-06 at 6.57.14 AM
S&P 500 E-mini futures, 30-minute bars

What does Elliott wave theory say? The present Minor wave 2 has fulfilled all of the requirements of a zig-zag pattern, so it could be over now or could have a bit more upside to go. Under the rules of Elliott Wave Theory, the price must remain below the beginning of the preceding wave 1 of Minor degree, 3231.25 on June 8.

What is the alternative? We won’t for know for sure if Minor wave 2 is complete until the price moves below the end of wave 1 of Minor degree, 2923.75 on June 15. It’s possible, although it would be unusual, for Minor wave 2 to extend in a combination pattern, pushing the decline further into the future. But the decline will come, eventually.

What’s the pattern ahead? It will go like this: Minor wave 2 to the upside will end. Minor wave 3 will push to at least the 2920s and perhaps quite a bit below that, Minor wave 4 will most likely perform a sideways movement of three waves or more internally, and then Minor wave 5 will push below the end of Minor wave 3. That will end Intermediate wave 1, Intermediate 2 will follow as an upward correction, and then Intermediate 3 will give a strong decline that will strip all traders of their remaining optimism.

Our Future: Up a little, Down, Sideways, Down, Significant Up, Shockingly big Down.

What about my trades? Biding my time as I wait for Intermediate wave 3, which is the big Down of Our Future.

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 6, 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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