Live: Monday, July 20, 2020

10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are in the midst of a rise that may finish off the upward correction that began March 22. At a smaller level, it is in the final stages of a downward correction, that began July 15, within the larger upward correction.

What does it mean? There’s not a lot of upside to the S&P 500 under the present analysis. The futures price must stay below 3397.50 for the analysis to hold. I consider a break above that level to be low probability.

Screen Shot 2020-07-20 at 7.16.32 AM
S&P 500 E-mini futures, 15-minute bars

What does Elliott wave theory say? The Primary degree correction that began in March has broken down into a double Zigzag pattern. The price is working on Intermediate wave C within the second Zigzag. As I count the subwaves, C is in its 4th wave, a downward correction, and will soon enter its 5th and final wave to the upside. When the 5th wave is complete, either it will mark the end of Primary wave 2 and the beginning of a substantial Primary wave 3 decline. Or, the correction will continue, stretching out into a triple Zigzag.

What is the alternative? It’s possible to count the July 15 high of 3233.25 as being the end of the Minor 5th wave and also the end of Intermediate C.

What about my trades? Holding my bearish shares of SDS; deferring any options trades until we’re in Primary wave 3 to the downside.

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 20, 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.