Monday, December 28, 2020

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to inch up throughout the today as it continued its rise as wave C of Submicro degree. The high half an hour before the close was 3740.51 on the index and 3732.25 on the futures. I’ve updated the futures chart, below.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures price resumed its climb when trading began overnight on Sunday and is again tracing a path along the upper boundary of the Diagonal Triangle that began on December 26, 2018. The overnight high was 3726.50.

What does it mean? The index and its derivatives have been in an upward correction within a larger downtrend beginning at 3596 on December 20. The correction has been shallow rather than the dramatic, as is typical of waves in this position of a trend. If the correction ends at the overnight high, then the net move will be a resumption of the downtrend, carrying the price back into the 3500s.

What is the alternative? The correction could extend in a compound pattern, with a shallow downward separator movement followed by another corrective pattern.

[S&P 500 E-mini futures at 3:30 p.m., 15-minute bars, with volume]

What does Elliott wave theory say? Wave C of Submicro degree, when complete, fulfills the minimum requires of its parent, rising wave 4 of Micro degree. Completion of Micro 4 would mean the start of wave 5 of Micro degree, a downtrending movement that, when complete, will mark the end of a number of parent waves, up to wave A of Minute degree. This is all happening within wave 4 of Minor degree and its parent, wave 5 of Intermediate degree.

It’s possible that wave 4 of Micro degree, rather than ending with Submicro wave C, will extend in a compound pattern. Indeed, that is a common occurrence with 4th waves. If that is in fact what happens, then the movement after Submicro C will be a downtrending X wave, which will connect the completed corrective pattern to another corrective pattern.

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 28, 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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