Monday, October 26, 2020

3:30 p.m. New York time

I’ve updated the chart with about half an hour to go before the closing bell. The S&P 500 completed its 3rd wave of Minute degree and has begun the 4th wave. All of this within a 5th wave of Minor degree, which is in turn a subwave of the 3rd wave of Intermediate degree.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to decline in overnight trading.

What does it mean? The further the drop in the S&P 500 price, the greater the likelihood that the major downtrend that began in September has.

What is the alternative? A fresh high an hour and 45 minutes before the opening bell opened a higher possibility that the bearish correction is continuing in a compound pattern, where several simple patterns are linked together.

[S&P 500 E-mini futures]

What does Elliott wave theory say? On the S&P 500 index chart, the Primary wave 1 downtrend that began September 2 completed its Intermediate wave 1 on September 24, and then moved into an Intermediate wave 2 correction that ended on October 12. The ensuing Intermediate wave 3 resumption of the downtrend is tracing out its 4th wave of Minor degree.

My trading strategy. Friday in management day for my short bear call options spreads on IWM. The positions are not profitable at this point. So if they turn profitable, I exit on Friday. If they remain unprofitable, I continue to hold as I suss out the best exit strategy.

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 26, 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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