Thursday, September 24, 2020

7:55 a.m. New York time

What’s happening now? The S&P 500 index reversed at 3,333.25 on September 23, completing its upside correction, and resumed its decline in the direction of the principle trend.

What does it mean? The present movement down is the final act of the decline that began on September 16. It will be followed by an upward correction that, if it has the energy, could move into the 3,500s. It will stay below 3,588.11, the peak attained on September 2.

[S&P 500 index, 30-minute bars]

What does Elliott wave theory say? Wave 4 of the Subminuette degree ended yesterday at 3333.25, and Subminuette wave 5 began. If the 5th wave reaches the lower boundary of the price channel, it will reach completion somewhere in the 3100s.

The end of Subminuette 5 also ends Minuette wave 3, which began its downward course on September 16 at 3428.92. What follows will be a corrective wave, wave 4 of Minuette degree. A 4th wave is always a different pattern than the preceding 2nd wave. Minuette wave 2 was a Zigzag, so wave 4 will be a Flat, a Triangle or a Flat Combination.

My trading strategy. My short iron condor options on SPY are trading at 8.7% of maximum potential profit. The 4th wave reversal to the upside ought to improve that. Under my rules I exit profitable positions 21 days before expiration, which would be Friday in this case. However, I shall let the Elliott wave analysis guide me in that action. So maybe Friday. I continue to hold my bearish shares of SDS.

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 xx, 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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