Friday, October 2, 2020

9:55 a.m. New York time

What’s happening now? The S&P 500 index opened with a 25-point descent below the October 1 high of 3397.18.

What does it mean? The magnitude of the fall gives greater certainty to my conclusion that yesterday’s high marks the start of the second, downward leg of the upward correction that began September 24.

[S&P 500 index, 15-minute bars]

What does Elliott wave theory say? Subminuette wave A rose 187.73 in 7 days, or 5.8%. What follows is Subminuette B, the second wave of the Minuette wave 4 correction within downtrending Minute wave 1.

B waves, by their nature, can be shallow or deep, and in fact can move beyond the starting point of the preceding wave A, which in this case was 3209.45. Elliott’s rules give very little guidance as to the magnitude of the fall.

My trading strategy. I won’t trade options on a B wave. There’s way too much uncertainty. I shall continue to hold my positions in SDS, an inverse fund based on the S&P 500.

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, October 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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