Thursday, January 21, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued a shallow and slow slide, leaving the choice between the principle analysis and the alternative still up in the air. I’ve updated the chart below.

10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures hit a peak overnight of 3859.75 and dropped back a little. The peak was five points below the 1.382 Fibonacci level, a common turning point for prices.

What does it mean? The peak by my principle count marks the end of the first leg of the rise that began January 17 from 3740.50. It will be followed by a correction, likely a Zigzag pattern that will take back much of that rise before resuming an upward course to still higher prices.

What is the alternative? The first leg rise may in fact not yet be over. If that’s the case, then the S&P 500 will quickly see a resumption of the rise without the intervention of any significant correction

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

What does Elliott wave theory say? Whether my principle or my alternative count prevails depends upon how we read the internal structure of the rise since October 17, which was wave 1 of Submicro degree. A first wave has five waves internal to it, stairstepping up to the end. If five waves are complete, then the next move will be wave 2 of Submicro degree. If the peak represents the end of wave three within Submicro 1 — the alternative count — then there will be a final push to the upside — Submicro wave 5 — after a shallow and brief Submicro wave 4 correction is complete.

Which count prevails depends upon how far the present decline travels. The further it goes below the overnight peak, the more likely that the principle count will prevail.

This is all happening within (smaller to larger) wave 5 of Micro degree within wave 5 of of Subminuette degree within wave within wave 3 of Minuette degree within wave 5 of Minute degree within wave 1 of Minor degree. The end of Micro 5 will trigger a 4th wave correction two degrees higher, within the Minuette degree, which will be seen as a potentially significant market reversal.

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
  • {-4} Subminuette
  • {-5} Micro
  • {-6} Submicro

By Tim Bovee, Portland, Oregon, January 21, 2021


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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