Thursday, December 24, 2020

12:40 a.m. New York time

Forty minutes before the closing bell. Very little movement of the S&P 500 in pre-Christmas trading shortly before the early market close. I’ve updated the near-term chart below.

9:55 a.m. New York time

Early close. The U.S. markets will close at 1 p.m. New York time for Christmas Eve, and will be closed all day Friday for the Christmas holiday.

What’s happening now? The S&P 500 future traded narrowly within a 25-point range overnight, tracing a downwave and an upward correction of very small degree.

What does it mean? The decline from yesterday’s peak of 3701.75 could be a step signaling a continuation of the upward correction that began December 20 as a compound structure.

What is the alternative? Or it could be the beginning of a downtrend that will carry the price into the 3500s.

[S&P 500 E-mini futures, at 12:38 p.m., 30-minute bars, with volume]

What does Elliott wave theory say? If the correction is still underway, then we’re seeing wave X of Micro degree, to be followed by a second corrective pattern. If the downtrend has resumed, then we’re seeing the first steps of wave 5 of Micro degree.

[S&P 500 index at 9:54 a.m., daily bars]

Big picture, the S&P 500 index continues to remain close to the upper boundary of a Diagonal Triangle that began on December 26, 2018. The triangle is the 5th, and final, subwave wave within Primary wave 5, which began in January 2009.

My trading strategy. I manage my profitable options positions 21 days before expiration. My present holdings, short bear call spreads on IWM, expire January 15, and the Christmas holiday on Friday is the day for management. However, IWM remains above 192 — the top of the profit zone — and so the position is presently unprofitable. I’ll hang on to it in the hope it will return to profitability, and if it doesn’t, I’ll pick the moment to take my loss.

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 24, 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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