Friday, February 5, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose a bit higher, to 3888.25 on the futures, 3894.56 on the index. I’ve updated the shorter-term chart posted this morning, and am adding, here, a longer-term chart showing the full Diagonal triangle that began in December 2018.

[S&P 500 index at 3:26 a.m., daily bars]

10:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise in overnight trading, piercing the 1.382 Fibonacci retracement of the sharp decline in February 2020. The highest level so far today is 3886.25.

What does it mean? The rise by my count is final movement in the low-level uptrend that began on January 21 from 3656.50.

What are the alternatives? The alternatives lie in the question, how far along is the rise that began February 4, the beginning of the present very low level movement. By my count it is midway through the rise, but other counts are defensible. So there’s some ambiguity in the chart.

Trading strategy. My short iron condor position on IWM has followed the S&P 500, rising sharply and moving above the upper boundary of my profit zone, at 220. The position is three weeks away from mandatory exit under my rules, which happens 21 days before expiration. I’ll wait a bit in the hope of gaining greater clarity as to the extent of the rise.

[S&P 500 E-mini futures at 3:30 p.m., 20-minute bars, with volume]

What does Elliott wave theory say? I’ll concentrate on the rise since February 4, the beginning of wave 5 of Minuscule degree within wave 5 of Submicro degree … and all the way up to wave 5 of Subminuette degree. The completion of the very low-level 5th wave that began on the February 4 will cascade up the degrees to a turning point of significance to traders.

Internally, I count Minuscule 5 as having completed wave 3 of Subminuscule degree and embarked on wave 4.

One thing to remember is that 5th waves sometimes extend, and that could give the price significant upside, perhaps to the next major Fibonacci retracement level, the 1.5, at 4009.25. More often, however, 5th waves complete their five internal waves and exit the stage.

Submicro wave 5 has taken a day to complete three of its five internal waves.

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
  • {-7} Minuscule

By Tim Bovee, Portland, Oregon, February 5, 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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