Thursday, October 29, 2020

3:30 p.m. New York Time

The S&P 500 and associated products rose by nearly 100 points and then showed the early stages of a reversal, in a correction at the 4th wave of Minuette degree. Tentatively, I count the A wave of Subminuette degree to be complete, with two more waves — B and C — to go.

The upward correction may delay my intended exit from my short bear call spread options positions on IWM, a decision that I’m due to make tomorrow, October 30.

[S&P 500 E-mini futures, 10-minute bars]

10:10 a.m. New York time

What’s happening now? The S&P 500 index rose in a low-level correction overnight and then continued its fall.

What does it mean? The price stands about 120 points above the lower boundary of the trend channel that began on September 2. It will eventually reach the channel, and the longer it takes, the lower the boundary will sink. A week from today, the lower channel will be at about 3172.

[S&P 500, 45-minute bars]

What does Elliott wave theory say? The decline that began September 23 is wave 3 of Minute degree within wave 3 of its parent series, the Minor degree. Both in turn are subwaves of wave 3 of Intemediate degree. So, a 3rd of a 3rd of a 3rd — that is a powerhouse in Elliott wave theory.

The Minute and Minor degrees within Intermediate 3 each have a 4th wave upward correction and a 5th wave grand finale decline ahead of them.

What lies immediately ahead? More down, punctuated by a few upward attempts.

My trading strategy. I’ve put a sell order in on my short bear call options position on IWM, at a price that is 50% of maximum potential profit, about 12 cents below the present price of the position. Tomorrow, October 30, is 21 days before expiration, when I sell the position at any level of profit, unless the chart suggests I should wait.

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 29, 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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