10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures today pushed to a higher high of 3273.25 in the uptrending correction, eclipsing the prior high of 3233.25, set July 15. So far the correction that began March 22 has retraced 90% of the decline that began on February 19.

What does it mean? The one-day push to the new high is powerful enough to suggest that a turning point is at hand. Some traders call it an exhaustion move.

What does Elliott wave theory say? The Elliott wave count shows the rise to a new high to be Minor wave 5 — the last in the series — within Intermediate wave C, which in turn is within Primary wave 2, the corrective wave that began March 22.

The rules of Elliott wave analysis say a 2nd wave cannot move above the preceding 1st wave of the same degree. The 1st wave began February 19 at 3397.50. That means Primary wave 2 has only 124.25 of upside from its high remaining. A push above the February starting point would mean that Cycle wave 5, that began in December 1974, is still underway.

(See my July 16 “Live” post for a discussion of the chart since February.)

If the present high marks the end of Intermediate C, then what happens next depends upon whether the correction extends further. We’ve already seen a double Zigzag within Primary wave 2. A triple Zigzag is certainly allowed under the Elliott rules.

So a weak and meandering decline off of the high suggests that the correction is still underway: Either a new Zigzag or a continuation of Minor wave 5. If the decline off of the high has some strength behind it, that would suggest that Primary wave 2 is complete and Primary 3 has begun its powerful decline.

What is the alternative? The wave count may in fact be a degree lower than I’ve labelled it. What I’ve numbered as Minor wave 4 could in fact be Minuette wave 1 within Minor wave 4, and the label Minor 5 may in fact be Minuette wave 2. I think it’s unlikely, but it’s possible.

What about my trades? I’m starting to feel like a Samuel Beckett play when it comes to options possibilities: I am waiting, not for Godot, but for Wave 3. I’m holding on to my bear shares.

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 21, 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.