Friday, October 16, 2020

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to climb overnight, tracing the first part of the final upward push within an upward correction in a major downtrend

What does it mean? The index and the futures and other related products will exceed the high high of October 12 — 3549.85 on the index chart, 3541 on the futures chart, most likely completing the upward correction within the decline that began September 2. The downtrend will resume, carrying the price back to the 3400s and well below.

What is the alternative? The low yesterday, October 15, and the subsequent rise can be analyzed as a continuation of the correction that began October 12. That was my principle count, but I’ve demoted it.

[S&P 500 E-mini futures, 4-hour bars]

What does Elliott wave theory say? I have noted before that I find the degree of waves to be something of a guessing game, especially early in a trend. With that in mind, I’ve revised my degree leveling by bumping it up several degrees to what I think is a more reasonable rendition. Although, in truth, there is no objective criteria that we can use at this point to ensure that the degrees are correct.

The rise that began October 15 is wave C of Minor degree, the final wave in wave 2 of Intermediate degree. The reversal at the end of Intermediate wave 2 will mark the beginning of wave 3, an energetic decline that will push well below the end of wave 1, into the 3100s and below.

My trading strategy. I’m holding my short iron condor options spreads on IWM in the hopes of catching the Intermediate 3rd wave decline before the options expire, 31 days from now. I’m continuing to hold my shares of the inverse fund SDS, which rises 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 16, 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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