Live: Friday, July 31, 2020

10:05 a.m. New York time

What’s happening now? The S&P 500 E-mini futures are tracing a low-level correction to the upside within a larger decline that began July 23.

What does it mean? The blue chips are in the early stages of their resumption of the decline that began February 19 and have a long distance to go before that decline is complete.

Screen Shot 2020-07-31 at 6.57.01 AM
S&P 500 E-mini futures, 45-minute bars

What does Elliott wave theory say? The week-old corrective movement, from  3191.50, is Minor wave 2 within Intermediate wave 1 of Primary wave 3, which began July 23. My principle count shows Minor 2 is taking the form of a compound corrective pattern, most likely a double Zigzag — two three-wave movements connected with an X-wave separator.

What is the alternative? Minor wave 2 can also be seen as an expanding triangle (marked in red), one of the horizontal family of triangles. However, horizontal triangles almost always happen in the next to the last wave of a movement: A 4th wave within the main trend or a B wave within a correction.

Turning Minor wave 2 into a 4th wave created distortions: Short 1st, 2nd and 3rd waves compared to the triangular 4th wave, with a high risk that the 3rd wave would be the shortest of the five, which is forbidden under the Elliott rules. The distortions were too great for my taste, and therefore I’ve relegated the expanding triangle count to an alternative. It’s still, possible, though. Horizontal triangles, while rare, aren’t entirely unknown in the second wave position.

On the chart: A triangle, my alternative count, has five legs, labelled A through E. The compound pattern, my principle count,  ultimately will have seven legs, labelled A through C, X, and another A through C. The chart is labelled with my principle count, with the red lines showing the the triangle-like formation that underlies my alternative count.

What about my trades? I’m awaiting Intermediate wave 3 within Primary wave 3 before putting on new option trades. I’m holding my bearish stocks (SDS), which rode through the Primary wave 2 correction and haven’t yet returned to profitability.

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 31, 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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