Live: Tuesday, July 7, 2020

10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures bounced back slightly after setting another post-June 8 high.

What does it mean? The pattern looks like topping behavior, in the language of traditional chart analysis. A mentor told me decades ago that such hesitancy on the chart meant there was a balance between bulls and bear.

Screen Shot 2020-07-07 at 7.16.02 AM
S&P 500 E-mini futures, 4-hour bars

What does Elliott wave theory say? What the traditionalists call “topping” is the end of a rising wave in Elliott wave theory. In this case the wave is Minor wave 2 within Intermediate wave 1 within Primary wave 3, which on June 8 began its mighty descent to come. Minor wave 2 has come within six points of the upper boundary of the Primary degree channel, linking the start of Primary wave 1 on February 19 and Primary wave 3 on June 8.

What is the alternative? Under the rules of Elliott wave analysis, the price of Minor 2 can pierce that upper boundary of the channel — a throw-over — but it cannot pierce the beginning of Minor wave 1 down, which is 3231.25.

What about my trades? I’m waiting until the start of Intermediate wave 3 before entering bear call options spreads on 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.

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 7, 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.

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Based on a work at www.timbovee.com.