Wednesday, February 17, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 traded in a narrow range during the day, remaining above its morning low of 3896.50. I’ve updated the short-term chart below.

10:25 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to decline from their February 15 peak of 3959.25 and had fallen nearly 63 points by the opening bell, to 3896.50.

What does it mean? The decline reinforces the conclusion that the rise that January 31, from 3656.50, ended with the February 15 peak. A move below 3890.25, the February 12 low from which the final rise within the larger rise began, would further reinforce that conclusion. If the rise from January 31 has indeed ended, then a major uptrend that began in February 2020, from 2191,86, has ended, and we can expect prices eventually to work their way down to the 2100s and below.

What are the alternatives? Although the rise from late January has met all of the requirements for completion, it’s possible that the current decline is a temporary pullback before the price resumes its rise, to higher highs.

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

What does Elliott wave theory say? The decline from February 15 is in a very early, very low degree 1st wave, perhaps Subminuscule, perhaps even lower. It will be impossible to define the degree until there’s more context. It’s still very early days, as the long-term chart below of the S&P 500 index shows. At this scale, the decline since Monday isn’t even visible.

[S&P 500 index at 10:47 a.m., 2-day bars]

The large scale chart of the S&P 500 index shows that the peak of February 15 had pushed above the upper boundary of an expanding triangle that began in December 2018 from 2346.58. The “expanding” means that the boundaries of the triangle grow further apart over time, so the price can be expected to move below the prior low, 2191.86.

The February 15 high, wave 3 of primary degree, will be followed by the 4th wave decline of the same degree down to the lower boundary of the triangle, and then by a large rise back to the upper boundary, the triangle’s 5th and final wave at the Primary degree. It is when the 5th wave ends a new highs that we can mark the end of the triangle and the end of the rise that began in December 2018. The downtrend that will follow the end of Primary 5 will carry significantly below the 2300s.

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 17, 2021

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.

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