Monday, December 14, 2020

3 p.m. New York time

One hour before the closing bell. The S&P 500 and its derivatives fell after peaking at 3691.50. That level marks the end of wave 4 of Subminuette degree and the beginning of Subminuette wave 5. I’ve updated the chart below.

6:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures gapped up by 18 points when trading resumed Sunday evening New York time. The upward correction continued to rise another 15 points in overnight trading before reversing.

What does it mean? Internally, the rise from Friday’s low has three subwaves, suggesting that the correction is at or nearing its end. Once it is complete, the next move will be to the downside.

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

What does Elliott wave theory say? The upward correction that began December 11 is wave 4 of Subminuette degree. It breaks down into three subwaves, as is normal for corrective patterns. The final subwave, the C wave of Micro degree, breaks into five subwaves. So it’s very late in the game for the parent 4th wave.

The end of wave 4 will kick off a downtrending wave 5 of Subminuette degree, which will decline past — perhaps significantly past — the end of the preceding 3rd wave, at 3620.75. The end of wave 5 will also complete wave A of Subminuette degree within wave 5 of Minuette degree and wave 5 of Minute degree, which in turn are within wave 4 of Minor degree.

My trading strategy. I’m holding my bear positions.

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 14, 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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