Tuesday, October 6, 2020

3:35 p.m. New York time

I’ve added a graf to the bottom of the IWM analysis giving the Elliott wave situation at entry.

3 p.m. New York time

I’ve entered a bear call options spread position on IWM and have posted an analysis.

10:10 a.m. New York time

What’s happening now? The S&P 500 index continues to rise, as it nears completion of an upward correction within a larger downward trend.

What does it mean? After the correction is complete, the downtrend will resume, perhaps reaching 3100.

What is the alternative? The correction could continue, forming a complex pattern. More on that in the Elliott wave section, below.

[S&P 500 index, 10-minute bars]

What does Elliott wave theory say? I’ve redone my count and now place the present moment in Subminuette wave C (it was A), which is in its 5th wave in the Micro degree. That’s a long way of saying it’s almost over. The end of Subminuette C may also ends Minuette wave 4, which began September 24. I used the hedge word, “may” because 4th waves often tend to form complex combinations, such as a Zigzag followed by a Flat. Or perhaps, a triangle, with its widening swings. This guarantees some ambiguity when the present wave C reaches its end.

In any case, once Minuette wave 4 is complete, what follows is Minuette wave 5, whose downward course could reach the lower boundary of the price channel, presently around 3113. The end of Minuette 5 also marks the end of Minute wave 1 to the downside, which began on September 2.

My trading strategy. For people like me who are trading the bear side, the end of Minuette wave 4 creates an options trading opportunity. The ambiguity at the end of wave 4 also also creates the chance of a head fake, since maybe the end wave C is a 5th wave, or maybe its more of the 4th wave. I prefer to trade in the direction of the parent wave’s trend, and the parent of this Minuette wave 4 is Minute wave 1, decided to the downside. That’s what underlies my bearish preference.

For my shares in SDS, which profits from a declining S&P 500, I’m trading larger-scale trends, with a goal of getting a tax break by holding the positions for a year, making them long-term profits.

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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Based on a work at www.timbovee.com.