Live: Thursday, July 23, 2020

3:10 p.m. New York time

The S&P 500 has dropped more than 2% from the high. So when can we declare that Primary wave 2 is over? There’s no bright red stop-sign to make the start of the downturn, but clearly the further the price falls, the greater the likelihood that Primary wave 3 has begun. There are, however, milestones, that do a lesser or greater degree let us know that the likelihood of wave 3 having begun.

A decline below each these levels suggests that Primary 2 may be over, from the weaker to  stronger strength of the suggestion:

  • A fall below the start of Minor wave 2, at 3105.25
  • Below the start of the second Zigzag of the correction, at 2923.75
  • And the strongest, loudest suggestion, below the start of Primary wave 2, at 2174. This would offer complete verification that wave 3 is underway.

11:30 a.m. New York time

What’s happening now? The S&P 500 E-mini futures set a new high, 3284.50, before the opening bell this morning in its rise that began March 22.

What does it mean? The upward correction of the market crash that began February 19 continues.

Screen Shot 2020-07-23 at 8.28.36 AM
S&P 500 E-mini futures, 4-hour bars

What does Elliott wave theory say? The rise since March, Primary wave 2 is in the Intermediate C wave of the second  Zigzag of the correction. within Intermediate C, I count Minor wave 3  out of five waves as being complete. Wave C must remain below 3397.50 (the tan line), the beginning of the Primary wave 1 crash in February. There’s not a lot of upside left.

Once the future Minor wave 5 is complete, the price will either resume its decline, with Primary wave 3 dropping even deeper than the Primary wave 1 crash went last February or will trace a third Zigzag pattern, composed of three waves.

The alternative? Given the ambiguities inherent in wave counting, it is possible to count today’s peak as the end of Minor wave 5, and therefore of Intermediate wave C and possibly Primary wave 2. I think my count matches the chart better but there’s an argument to be made for the alternative.

What about my trades? Waiting for Primary wave 3.

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 23, 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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