Monday, August 24, 2020

S&P 500 index, 30-minute bars

9:40 a.m. New York time

What’s happening now? The S&P 500 index rose to within 4% of the upper of the trend channel. 

What does it mean? The index is nearing the end of its uptrend and most likely will reverse before reaching the upper boundary of the trend channel.

What does Elliott wave theory say? The S&P E-mini futures on Sunday rose above their February 19 high, returning all of the major S&P 500 vehicles to alignment on the fifth day after they diverged. I’ll continue to focus my analysis on the S&P 500 index, turning to the E-mini futures to fill in the blanks where the index isn’t trading. (See “The Wave 2 Rule Collides With Reality“ for a description of the discrepancy.)

The index last Thursday began its 5th wave of Micro degree, the smallest degree I’ve counted as the 5th wave of Intermediate degree — five levels higher — nears completion in a Diagonal Triangle pattern.

Diagonal Triangles tend to reverse before reaching the trend channel boundary, so the end of the rise may be nearer than the boundary line might suggest.

Elliott wave theory says that the end of Intermediate 5 will mark the beginning of a downward correction that will march the price down to beyond the lower boundary of the triangle, perhaps around the 2000 level as a start, depending upon how quickly the decline progresses, and afterword, significantly below that level.

What is the alternative? There’s no limit, in the Elliott analysis rule set, on how far a 5th wave can travel, and there’s nothing that prohibits the price from breaking above the trend channel, by a little or a lot. I can guess that we’re within months of the end of Intermediate 5 and the start of the decline, but not necessarily. As always with the markets, the timing of things is a mystery.

What about my trades? I’ll continue to hold my bear shares (the inverse S&P 500 exchanged fund SDS) in the expectation that they will return to profitability during the fall after Intermediate wave 5 reaches its end. Regarding options: I’m reluctant to trade this close to the end of wave 5 while there’s also a possibility of an extended rise. So I shall bide my time.

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 24, 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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at