Thursday, August 13, 2020

10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures remain below Wednesday’s high, which in combination with Tuesday’s high has formed what traditional chart analysis calls a “double top“. In order to confirm the top, the price must next move below resistance, which lies at 3319.50 (marked in red).

What does it mean? A double top is a bearish signal, exceeded in power only by a triple top. It means that the buyers and sellers have reached a balance point. The double top suggests that the buyers at present lack the power to push the price higher.

Screen Shot 2020-08-13 at 6.57.13 AM
S&P 500 E-mini futures, 1-hour bars

What does Elliott wave theory say? The double top suggests that the rise from March 22, Primary wave 2, is on its last legs and perhaps ended on Wednesday, and the Elliott wave count — a 5th wave of Minor degree within a C wave of Intermediate degree, is consistent with the traditional analysis. The two tops have come at the upper boundary of the price channel (dotted line), which is also suggests that the double top should be taken seriously.

What is the alternative? I’ve got nothing at this point, unless the price rises above the 3397.50 level (gold line), a movement that would require a rethinking of the entire analysis since February.

What about my trades? Yesterday I bought shares of SDS, an exchange-traded fund that goes up when the S&P 500 goes down, and buy more shares today.

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 13, 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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