Thursday, November 12, 2020

3:35 p.m. New York time

I’ve updated the chart below at 30 minutes before the closing bell. The small scale wave 5 to the downside has begun in the early stages of wave 4 of Minor degree.

10 a.m. New York time

What’s happening now? The S&P 500 index has completed a four-move pattern to the downside as it begins its journey south to the lower boundary of the expanding Diagonal Triangle that began in December 2018.

What does it mean? It’s still early steps, but the decline that began on November 9 will carry the price from the peak 3645.99 down to the 2150s or below. That downward movement will be followed by an upward push to a new high.

[S&P 500 index, 45-minute bars]

What does Elliott wave theory say? The Diagonal Triangle is the conclusion of uptrending Primary wave 5. The present decline down toward the lower boundary is Minor wave 4, and the subsequent rise will be Minor 5, the final wave within Primary wave 5. I wouldn’t hazard a guess at this point identifying the degree of the four-wave decline from the peak.

My trading strategy. Shares: continue to hold bear positions with an eye to possibly selling at the low end of Minor wave 4. Options: My next entry window for spreads is November 24 to December 8, centering on 21 days before the January options expire.

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, November 12, 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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