Wednesday, November 18, 2020

3:30 p.m. New York time

Wave 5 of Micro degree, possibly, has begun the final downward push within wave 3 of Subminuette degree. The chart is from half an hour before the closing bell.

[S&P 500 E-mini futures, with volume]

10:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures crept continued to trace a small-scale upward correction within a much larger uptrend that is nearing its end.

What does it mean? The uptrend is part of the last movement of a rise that began in 2009. Its completion will cascade to longer trends, completing the rise since 1974, and, a level higher, since 1932. So it’s a really a big deal.

[S&P 500 index, daily bars]

What does Elliott wave theory say? The rise since December 2009 is Intermediate wave 5 within Intermediate wave 5 (began in 2018) within Primary wave 5 (began in 2009) within Cycle wave 5 (began 1974) within Supercycle wave 5 (began in 1932).

At a smaller level, Minor wave 4 — a subwave Intermediate 5 — is underway, beginning on November 9, when Minor wave 3 reached completion.

Intermediate wave 5 has taken the form of an expanding Diagonal Triangle, and I expect Minor wave 4 to reach the lower boundary (the lower red line) before Intermediate 5 climbs to new heights.

My trading strategy. The Minor degree is the clock governing my options trades: Short bear call spreads for Minor 4, once it starts the middle wave of its decline, and short bull put spreads for Minor 5. As the longer-term chart shows, Minor 4 is just getting started.

For my bearish shares (the inverse fund SDS) I’m playing the Intermediate waves.

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 18, 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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