Live: Friday, August 7, 2020

10 a.m. New York time

What’s happening now? The rise in the S&P 500 E-mini futures continued overnight, pulling to within 50 points of the beginning of the Covid-19 Crash on February 19.

What does it mean? The start of the downward trend in February puts a ceiling on the analysis I’ve been using for the past six months. A move above that starting point, 3397.50, would mean that everything that has happened since February was a correction within an ongoing uptrend, rather than new major downtrend.

The difference matters for my assessment of the future course of the index.

What does Elliott wave theory say? The principle count means puts the price near the end of Primary wave 2 within the larger Cycle wave 1 to the downside. Primary wave 1 ended on March 22. Under this count, the market rise, with setbacks, since the 1930s that has marked the lives of almost everyone alive today, ended in February. We are in a downtrend of gargantuan proportions and a deep depression is settling over the world as growth slows and prosperity fades.

Screen Shot 2020-08-07 at 6.59.43 AM
S&P 500 E-mini futures, 6-hour bars

A move below 2923.75, the X wave low (green line), lends credence to the analysis that Primary wave 3 has begun. A move below 2174, the end of Primary wave 1 (purple line), confirms that Primary 3 is underway.

What is the alternative? If the price moves above 3397.50 (gold line), then we switch to the alternative count, which labels the March 22 low as the end of the correction — a Zigzag with Intermediate waves A, B and C internally, and from then until today the labelling would be tracing five waves up, a motive wave in the direction of a major uptrend within Primary wave 1 to the upside, which in turn is within a rising Cycle wave 5.

The alternative means that the rise that began in the 1930s, during the Great Depression, is still underway. The world will soon breathe a sigh of relief and prosper as our economy continues to grow.

What about my trades? I’m still holding fast to the principle count, so I’m hanging on to my bear shares (symbol: SDS) and preparing to resume trading options once Primary wave 2 is complete.

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, August 7, 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
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Based on a work at www.timbovee.com.

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