Live: Tuesday, August 11, 2020

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose this morning before the opening bell to 18.50 points below the price, 3397.50 (gold line), at which the downtrend began on February 19. The price then retreated by about 10 points.

What does it mean? A move above 3397.50 would mean that decline into March was a correction within an uptrend, and that the uptrend has resumed.

Screen Shot 2020-08-11 at 6.30.34 AM
S&P 500 E-mini futures, 5-minute bars

What does Elliott wave theory say? Elliott wave analysis has a few rules, clear points that cannot be violated. One of them is that if a 2nd wave moves beyond the beginning of a 1st wave, then it isn’t a 2nd wave. Simple, yes?

So if the S&P 500 E-mini futures rise 18.51 above this morning’s high, the entire structure of analysis since February collapses and must be built anew.

Under my current principle count, the rise since March is Primary wave 2 of a correction that has much further to go. The movement is in its late stages: Intermediate wave C within Primary 2.

What is the alternative? If the price moves above 3397.50, then the decline from February 19 — Primary wave 1 in my principle analysis — was instead Primary waves A, B and C, the entirety of the correction, and the rise that followed is something else. My post of August 7 went into greater detail on the alternative in the event that the 3397.50 level is breached.

Which S&P 500 are we talking about? The S&P 500 is shorthand for a whole family of investment vehicles, and they don’t always move exactly in lockstep. So the futures may move above 3397.50 when the index (SPX) fails to move above that level, and the exchange-traded fund based on the index (SPY) may reach a different level relative to the February 19 peak.

All of these products are based on the index, but they are traded separately, and the index isn’t necessarily the Queen Bee of the S&P 500 hive. I discussed this matter in my post of July 16.

Before I’m willing to overthrow my principle analysis and replace it with my alternative analysis, I’m going to want to see some unanimity in the S&P 500 universe — a breaching of the February 19 high by the index, the futures, and the ETF SPY.

What about my trades? If the principle analysis survives, then I shall hang on to my bear shares (SDS) and at the onset of Primary wave 3 will add to my share holdings and also resume trading short bear call options spreads.

If the alternative analysis proves to be true, then I shall look for an exit of my shares of SDS and begin looking for an entry point for trading short bull put options spreads (or short iron condors if the market returns to a low implied volatility period).

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 11, 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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