Friday, August 14, 2020

10:10 a.m. New York time

What’s happening now? As the week draws to a close, the S&P 500 E-mini futures continue to bounce along the upper boundary of the price channel since February.

What does it mean? This morning was the fourth charge at the resistance level, and like the three before it, the price failed to break through. Each failed attempt strengthens the analysis that the rise since March is complete.

What does Elliott wave theory say? By my analysis, the S&P 500 peak on August 12 at 3382.50 is the end of Primary wave 2 to the upside, which began on March 22 at 2174. Primary 2 internally was divided into two Zigzag of three waves apiece, separated by an X wave.

Screen Shot 2020-08-14 at 7.09.18 AM
S&P 500 E-mini futures, 5-hour bars

At the Intermediate degree, one down from Primary, it will take a drop below the X wave terminus, at 2923.75 (green line) to reach a significant finding that the Primary wave 3 decline is truly underway. A drop below the beginning of Primary wave 2, at 2174 (purple line) would confirm that Primary wave 3 has begun. My target for Primary 3 is the lower boundary of the price channel, below 2150 and perhaps significantly below.

Primary wave 3 will play out in this manner: A tentative Intermediate wave 1 to the downside, an Intermediate wave 2 that likely will carry the price back to near its present level, and then a powerful Intermediate wave 3 push to the downside.

What is the alternative? As long as the price is bouncing along the upper boundary of the price channel, then there’s a chance that it will exceed the August 12 peak, and that high would become the new endpoint of Primary wave 2. Moreover, if the price exceeds the beginning of Primary wave 1 on February 19, at 3395.70 (gold line), then the decline that began  on that date is a continuation of Primary wave 5, which began in December 1974.

What about my trades? I’ve completed my additional purchases of shares of SDS, an exchange-traded fund based on the S&P 500, except it moves in the opposite direction. So they’re a bear play. No options trading planned yet. I’m looking to catch Intermediate wave 3 within Primary wave 3 for my bear call options spreads trades.

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 14, 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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