Tuesday, December 22, 2020

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 a little and then rose back a little during the day in what could be interpreted as either a continuation of the 4th wave of Subminuette degree or the beginning of Subminuette wave 5. There’s still a great deal of ambiguity. In either case, the potential upside movement is limited under the rules of Elliott Wave analysis, so my expectations lean toward a decline. I’ve updated the chart below.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures overnight continued the rise that began December 20 and have so far completed three waves. In trading before the opening bell it hooked downward and continued to decline slowly in the early minutes of the session.

What does it mean? The rise is a low-level upward correction within a downtrend that is in its third wave. The correction is likely to extend beyond three waves, tracing a compound structure, delaying the eventual decline.

What is the alternative? The upward correction, when complete, will be followed by a decline that is likely to carry the price back into the 3500s.

[S&P 500 E-mini futures at 3:30 p.m., 30-minute bars, with volume]

What does Elliott wave theory say? The rise from the December 20 low is wave 4 of Subminuette degree. Fourth waves tend to extend and always form a different pattern from the preceding 2nd wave. The parent wave of Subminuette 4 is downtrending wave 5 of Minuette degree, which began from the December 20 peak of 3724, and within it, Subminuette wave 2 was a simple Zigzag pattern. So I expect that we’ll see a compound structure, with the segments being separated by an X wave to the downside.

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 22, 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.