3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued in its sideways movement, staying above the day’s low, 3801.50 as it worked through the 4th wave of Subminuscule degree. I’ve updated the short-term chart from this morning. And here’s the long-term chart, showing the entirety of the rise from February 23, 2020, with the Diagonal Triangle marked in red. In the big picture, the next decline will carry down to the lower boundary of the triangle in a 4th wave, and then rise back to the upper boundary in a 5th and final wave.

2:25 p.m. New York time

I’ve decided to hold my IWM short iron condor options position through the weekend and revisit exiting on Monday. I’ve updated the IWM Trade post with details and a chart.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined 3.25 points below the low of February 23, to 3801.50, and then began a sideways movement.

What does it mean? The break below the February 23 low confirms that a downtrend is under way, and that the price will carry lower. The sideways movement that followed is a shallow correction pattern, a pause that will be followed by further decline. The next milestone is the upper boundary of the expanding triangle that began in December 2018 (the red line on the chart), ending the overthrow condition that began on December 28, 2020.

What are the alternatives? What I’ve labeled a downtrend could in theory be a leg in an expanding triangle pattern that would carry the price above the high of December 24, 3934.50. I consider this to be a low probability. Another possibility is that wave 3 is not yet complete, that today’s low is the end of the 1st wave within wave 3 and the sideways pattern is the beginning of wave 2, which typically will retrace much of the 1st wave.

What does Elliott wave theory say? The sharp decline from February 25 was wave 3 of Subminuscule degree, and the sideways pattern that followed is a wave 4 correction, which is typically a shallow construction. This is all happening within a nested series of 1st waves, up to Micro degree, within wave A of Subminuette degree, which in turn is within wave 4 of Minuette degree. So in the longer run, the wave 4 correction of Minuette degree will be followed by wave 5 that will reach new highs.

My trades. My options position on IWM has 20 days until expiration, and in accordance with my rules, I shall be looking to exit if I can do so profitably. More on this later.

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.

• Elliott wave analysis
• Fibonacci level

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 xx, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.