Tuesday, December 1, 2020

3:30 p.m. New York time

Half an hour before the closing bell the S&P 500 remains about 16 points below its overnight high. Barely changed.

10:45 a.m. New York time

What’s happening now? The S&P 500 index and its derivatives rose rapidly after Monday’s closing bell. The index moved above the upper boundary of the Diagonal Triangle that began in December 2018, a condition known as a throw-over, taking the alternative course described in Monday morning’s analysis. The E-mini futures approached but remained below the boundary.

What does it mean? A throw-over is generally a short-lived condition, suggesting a reversal will soon be at hand.

What is the alternative? The degrees I have on the chart need revisiting — I’ve written before about the ambiguity inherent in labelling degrees, especially early in a trend.

What does Elliott wave theory say? On the chart I’ve moved the end of wave 3 of Minor degree from the previous high, on November 9, to the December 1 high of 3676.22 (so far). Uptrending Minor 3 will be followed by downtrending Minor 4, both being subwaves of uptrending wave 5 of Intermediate degree.

My trading strategy. My short bear call options spread positions remain within what will become the profit zone. As the entry analysis shows, the short call is at $192, which is $7 above the symbol’s high so far of $185.44, set on November 24. If the price exceeds $192, then I will need to make a hold or sell decision. I continue to hold my contrarian shares in SDS; as the S&P 500 rises, they fall. The Elliott wave analysis shows that a decline will happen soon.

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, December 1, 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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