Wednesday, October 14, 2020

9:45 a.m. New York time

What’s happening now? The S&P 500 index continued to decline from its peak of October 12.

What does it mean? The decline lends further credibility to the notion that a downward correction within a larger upward correction has begun.

What is the alternative? If the decline ends without tracing out the full three waves that are expected of a correction, then the downward correction within a larger upward correction has not yet begun.

[S&P 500, 30-minute bars[

What does Elliott wave theory say? The upward correction is wave 3 of Subminuette degree, and by my count it has completed its 3rd subwave, of Micro degree. The decline from October 12 is the Micro 4th subwave. All of it is happening with an uptrending corrective wave, Minuette 2, which in turn is within downtrending wave 1 of Minute degree.

Within Micro 4, wave A of Submicro degree appears have three subwaves, and if the subsequent movement proves that appearance to be accurate, then Micro 4 will most likely prove to be a Flat pattern. A waves in Flats have three internal waves, and in Zigzags, five internal waves.

My trading strategy. I’m counting on Micro wave 4 to decline enough to return my short bear call options spread positions to profitability. If it doesn’t, then I’ll be looking at a loss. I’m continuing to hold my shares of SDS, an inverse fund that profits when the S&P 500 declines.

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 14, 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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at