Tuesday, December 8, 2020

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 followed the alternative path that discussed this morning, below. It broke above the upper boundary (red line) of the Diagonal Triangle that began in December 2018, reaching a new high of 3708. I’ve updated the chart below, updating the count to show Minor wave 3 peaking at today’s new high and the decline over the last two days being wave 4 of Subminuette degree. It is possible that the Subminuette wave 5 rise is not yet over, and that’s the new alternative count.

9:40 a.m. New York time

What’s happening now? The S&P 500 index continued to work its way downward overnight, along with its derivatives. The E-mini futures have fallen 32.25 points off of yesterday’s high, down to an overnight low of 3664.25.

What does it mean? The downward movement is the early stage of a downward correction that will attain significant magnitude by the time it’s complete.

What is the alternative? It’s possible that the December 4 peak, 3705, wasn’t the end of the massive rise rise since February 23, when the S&P 500 index sank to 2191.86. There could be more upside ahead if that rise is still underway, but the upper boundary of the Diagonal Triangle that began in December 2018 suggests that there is little upside potential.

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

What does Elliott wave theory say? Under my principle analysis Minor wave 4 began on December 4 and so far has completed three waves of Subminuette degree, the first steps in Minuette wave 1 within Minute 1 within Minor wave 3. I may end up adjusting the smaller degrees depending upon the length and magnitude of waves to come.

Wave 3 of Subminuette degree ended this morning around 7 a.m. New York time, and Subminuette 4 is rising as the opening bell sounded.

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 8, 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.