Monday, October 5, 2020

3:05 a.m. New York time

The S&P 500 index has pushed up to a new high in the rise that began September 24, to 3401.99 about an hour before the closing bell. Otherwise, no change to the analysis.

10:15 a.m. New York time

What’s happening now? The S&P 500 index continues to work through the early stages of a downward move.

What does it mean? The decline follows a rise from September 24 to October 1, and will be followed by another upward movement.

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

What does Elliott wave theory say? The decline that began October 1 is Subminuette wave B within Minuette wave 4. So far, the 4th wave has retraced 86% of the preceding 3rd wave of the same degree, a few points greater than the usual range.

My trading strategy. The optimal date for entering the November monthly options is October 6, tomorrow. So, sometime, today through Wednesday, I’d to place trade, if the analysis supports it. As my vehicle, I’m looking at the exchange-traded fund IWM, which tracks the Russell 2000 index. It has a higher implied volatility rank, above 30, and that gives a better return than something lower, such as SPY, which tracks the S&P 500. I’ll most likely structure any position as a short bear call spread, and I’ll post a full analysis when I make the trade.

Equities: I continue to hold my shares in the exchange-traded fund SDS, which profits when the S&P 500 falls.

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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