Thursday, December 3, 2020

3:35 p.m. New York time

The S&P 500 index and futures moved above their high of December 1, extending the rise of Minor wave 3 and its subwaves. I’ve updated the chart, below, at half an hour before the closing bell.

10 a.m. New York time

What’s happening now? The S&P 500 index and its derivatives has completed one down-wave of five subwaves and one up-wave of three subwaves since the peak of December 1.

What does it mean? The pattern is typical of a downward correction.

[S&P 500 E-mini futures, 15-minute bars, with volume]

What does Elliott wave theory say? The parent wave is a 4th of Minor degree, and the subwaves are A and B of Minute degree (or possibly one degree down, of Minuette degree). Wave B took back most of wave A, which as is typical of B behavior.

My trading strategy. Down is eventually profitable for my short bear call spread options positions, and the pattern shows a downtrend, so I’m in hold mode. Same with my shares of SDS, an inverse exchange-traded fund based on the S&P 500, with a long time horizon.

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 3, 2020

Disclaimer

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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Based on a work at www.timbovee.com.