Monday, September 21, 2020

10 a.m. New York time

What’s happening now? The S&P 500 index is continuing the decline that began on September 16. The price so far has reached a low of 3,248.15, down 5.3% from the September 16 high.

What does it mean? By falling below the low of September 11, which was 3,310.47, the index has confirmed that the correction is over and the downtrend has resumed.

[S&P 500, 15-minute bars]

What does Elliott wave theory say? Wave 3 of Minuette degree began on September 16. The Subminuette degree, one smaller than the Minuette, is in its 3rd wave, which, based on the price channel, appears likely to end around 3,200 or below.

My trading strategy. I shall exit my short iron condor position on SPY, an exchange-traded fund that tracks the S&P 500, around the end of Subminuette wave 3. I shall continue to hold my shares in SDS, an ETF that tracks the inverse of the index, preferably into next year, when some of the lots will become eligible for the long-term tax break.

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, September 21, 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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