Wednesday, October 28, 2020

12:05 p.m. New York time

Here is a chart analyzing wave 5 of Minute degree, a downward movement that will complete the larger wave 5 of Minor degree and the still larger wave 3 of Intermediate degree. The completion of the present wave 5 of Micro degree will complete its parent, wave 3 of Subminuette degree, which will be followed by an upward Subminuette 4 movement that under the Elliott wave rules is likely to stay bellow 3308 on the futures chart.

[S&P 500 E-mini futures, 5-minute bars]

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply overnight.

What does it mean? The fall is the final movement that began on October 23, from 3462.50, and its parent decline that began on October 12, from 3541. It’s completion will usher in a significant upward correction that will mostly be a Flat pattern that will reach somewhere in the range of 3402 (the October 21 low) to 3460 (the October 23 high on the index, or 3402 to 3462 on the E-mini futures on the same dates.

What is the alternative? The sharpness of the decline leaves no apparent alternative. That’s not to say that ambiguities won’t appear; I just can’t see any at present

[S&P 500 E-mini futures, 30-minute bars]

What does Elliott wave theory say? The sharp decline that began yesterday, October 28, is wave 5 of Minute degree within wave 5 of Minor degree within wave 3 of Intermediate degree. The completion of the fifth waves will mark the beginning of the Intermediate wave 2 correction to the upside. Fourth waves often end within the span of the 4th wave one degree lower. The 4th wave of Minor degree ran from October 21 to October 23, and that provided the targets I noted above. Minor wave 5 internally is in Minute wave 5, so Minor 5 is nearing its end.

All of this is happening within wave 1 of Primary degree, which began September 2.

My trading strategy. Short bear call spread options on IWM: Exit at 50% of maximum potential profit, or on Friday, the 21st day before expiration, or on any sign that Minor wave 5 has reached its end. SDS shares: Continuing to hold until Primary wave 1 nears completion.

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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