Tuesday, August 18, 2020

12:35 p.m. New York time

The S&P 500 index has broken above its February 19 high of 3393.52, by 1.54 points, to 3395.06. It quickly pulled back.

Screen Shot 2020-08-18 at 9.41.54 AM
S&P 500 index, 5-minute bars

In Elliott wave analysis, the 2nd wave of Primary degree has broken above the 1st wave of Primary degree. Under R.N. Elliott’s rules, if a 2nd wave breaks beyond the start of the preceding 1st wave of the same degree, it’s not a 2nd wave.

As of this writing, the S&P 500 E-mini futures have not broken above the February high, and neither has the exchange-traded fund SPY, which tracks the index.




Here are the numbers:

vehicle primary 1 start primary 2 high breakout
index 3393.52 3395.06 1.54
futures 3397.50 3390 -7.50
etf 339.08 339.07 -0.01

Things were simple when R.N. Elliott was formulating his system of analysis. Charts were daily, nothing shorter. There were no index futures or exchange-traded funds.  He analyzed the Dow Jones Industrial Average. It was the major index of his time, and there were no index futures or exchange-traded funds.

Last July I described my rule for analyzing an Elliott wave event when there is a disagreement between S&P 500 vehicles, in my post “A Funny Thing Happened“. And under that rule, the event must be unanimous. In this case, the index, futures and the exchanged-traded fund SPY must all three participate in the Elliott wave event. Otherwise, it’s too close to call.

So I’m in wait-and-see mode.

10:30 a.m. New York time

What’s happening now? The S&P 500 E-mini futures quickly ran up to a new high of 3390 at the opening bell today, 7.50 points below the start of the February crash. In the second half hour of trading it declined sharply to just above the 3370 level.

What does it mean? If it’s correct that a major downtrend began in February, and the rise since March has been correction within that downtrend, then there’s very little upside left. The start of the downtrend in February, from 3397.50, sets a ceiling on the correction. If the price bursts through that ceiling, then the February crash, rather than beginning a downtrend, was in fact a correction within an uptrend that began in 1974.

S&P 500 E-mini futures, 30-minute bars

What does Elliott wave theory say? Primary wave 2, the upward correction within a Cycle wave 1 downtrend, is in its final movement — Intermediate wave C. The Minor waves within Intermediate C have completed the five-wave set.

What is the alternative? The caveat that goes with any declaration that a five-wave set is complete goes like this: Unless there’s a new high. In that case, then the Minor waves’ count gets a make-over.

The three Intermediate wave rise from June 15 began at 2923.75, and a drop below that level suggests that Primary wave 3 is indeed underway. Primary wave 2 began on March 22 at 2174, and a drop below that level means that the start of Primary wave 3 is a certainty.

What about my trades? I’m looking for Intermediate wave 3 within Primary wave 3 as my preferred trading point.

What else is interesting?  A Rand Corp. post, “What Unemployment Statistics Obscure About Temporary Layoffs“, by Kathryn A. Edwards, digs into the unemployment percentages and concludes that the temporary shutdown has morphed into a full recession. Worth a read.

About the chart. The chart is from my iPhone, since TDAmeritrade’s ThinkOrSwim app for laptops and desktops is, for the second day in a row, not working. See Downdetector to track the problem.

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 18, 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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Based on a work at www.timbovee.com.