Thursday, December 10, 2020

The platform for Private Trader is no longer sizing charts correctly. So until the problem is resolved, you’ll be seeing impressively gigantic charts in my posts.

3:30 p.m. New York time

Half an hour before the closing bell. Micro wave 5 and its parent, Subminuette wave 1, both to the downside, are complete. Subminuette wave 2 to the upside has begun. The entire structure will eventually resolve itself into Minute wave A within Minor wave 4, a downward correction. I’ve updated the chart below.

9:55 a.m. New York time

What’s happening now? The S&P 500 index and its derivatives continued their fall overnight, interspersed with a small-scale upward correction. The low of 3644 on the E-mini futures was reached soon after the opening bell.

What does it mean? The first small movement to the downside is in its final stage and will be followed by an upward correction that could take back much of the decline from the high of 3714.75 reached on December 8. Although there’s no requirement that it be that steep; a shallow correction is perfectly within the rules of Elliott wave analysis.

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

What does Elliott wave theory say? I’ve labeled yesterday’s steep decline was wave 3 of Micro degree, although that assessment may well move up a degree or two as the downtrend develops. The futures traced a shallow sideways correction, Micro wave 4, in overnight trading, and then began Micro wave 5, the final subwave of Subminuette wave 1 to the downside.

The next step will be Subminuette wave 2, and in Elliott Wave Theory 2nd waves tend to be Zigzags that correct much of the preceding 1st wave.

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 10, 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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