10:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures this morning did a repeat of Monday, moving back above the previous high. The new high is 3233.25, seven points higher.

What does it mean? The correction that began July 15 is still underway. It will be followed by a sharp decline.

What does Elliott wave theory say? The fresh breakout means that Minor wave 2, an upward correction, is still in force. It has completed two Zigzags of the Minuette degree, one level down from Minor. The continuation of the correction means that there will be at a minimum three more Minuette waves. Their duration varies, but so far that lower degree’s waves have taken anywhere from one to 10 days to run their course.

However, the futures also moved above the peak of June 8, the June 8 peak of Primary wave 2, which is two degrees above the Minor level. That point is also the start of Minor wave 1, and wave 2 under Elliott’s rules cannot move beyond the start of wave 1. It would require a significant reworking of my analysis. But is it a true signal?

As I noted in last Saturday’s post, “A Funny Thing Happened“, the S&P 500 is a family of products, and sometimes they diverge. They major three are the index itself, the exchange-traded fund SPY and the E-mini futures. I track the futures in my daily analysis because they provide a lot of after-hours trading and so my chart avoids the annoying gaps that we see, especially, in the index itself, which trades only during market hours.

The S&P 500 index and SPY didn’t  break above the Primary wave 2 level. So I consider that aspect of the breakout to be too close to call. Ultimately I need agreement among all three of the major products before accepting a breakout to be a true signal. The vote now is one in favor a breakout, two against.

What is the alternative?  Any analysis of alternatives relies on whether the breakout above the start of Minor wave 1 was a true signal.

What about my trades? Holding my shares, deferring options plays.

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, July xx, 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.