Monday, November 30, 2020

3:30 p.m. New York time

The S&P 500 took back a bit of its fall today but remains below the Minuette wave 3 peak of November 29. I’ve updated the chart, below.

11 a.m. New York time

I’ve entered short bear call options spreads positions on IWM and posted an analysis. The positions are Lot 2020-2 for IWM.

10:40 a.m. New York time

The S&P 500 E-mini futures have dropped below their low in overnight trading, suggesting that a downward move has begun: Wave 5 of Minuette degree within wave 5 of Minute degree within wave 4 of Minor degree. I’ll start analysis for options entry today rather than tomorrow. Chart below updated at 10:45 a.m. New York time.

9:45 a.m. New York time

What’s happening now? The S&P 500 index and its derivatives continue to meander just below the upper boundary of the Diagonal Triangle that began in December 2018, the structure that has defined much of the market movement for the past two years.

What does it mean? The boundary defines how much upside is in the market. The S&P 500 E-mini futures are about 60 points below the boundary, a condition suggesting that the prospect for the next month or more is a downward move.

What is the alternative? Prices sometimes extend beyond the boundary, although the condition, called a throw-over, is short-lived.

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

What does Elliott wave theory say? The index is in the early stages of a downtrending 4th wave correction of Minor degree within a 5th wave of Intermediate degree. The 5th wave, when complete, will mark the end of the rise that began in 1974.

The close-up view, in the chart, shows the index tracing a downtrending 4th wave of Minute degree — down one from Minor — that is either in its 3rd wave of Minuette degree or a Minuette X wave subdividing a complex correction.

My trading strategy. Tuesday, December 1, is 45 days before the January options expire, on the 15th, making it the optimal day for entry. I’ll wait until tomorrow to decide on entering options positions. I’m leaning toward short bear call options spreads as my vehicle.

My share positions are all in SDS, an S&P 500 derivative that grows in value as the index declines.

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 30, 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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