Monday, March 1, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continues its rise, reaching a high today of 3914.50 on the index, 3912 on the futures. Wave C of Bitsy degree within wave 4 of Sub minuscule degree is still underway. I’ve updated the chart below.

2:50 p.m. New York time

My position. The price of IWM has moved above the upper boundary of the profit zone of my short iron condor options position, as the middle wave of wave C of Bitsy degree within wave 4 of Subminuscule degree continues its rise. At this point exiting would cost me 28% more than waiting for the options to expire. So I shall hold on to the position, anticipating that the end of wave C will be followed by either a resumption of the downtrend that began on February 10 from 230.32, or a downtrending separator wave that will paste two corrective patterns together. In either case, the end of the C wave will give me chance to exit either for a profit or for a smaller loss. The options expire in 18 days.

10:15 a.m. New York time

What’s happening now? The S&P 500 E-mini futures moved into the final wave of a shallow upward corrective pattern, reaching a high so far of 3878.75.

What does it mean? The basic correction pattern is three waves — up, down, up for an upward correction. However, the corrections that comes later in the larger trend sometimes will extend, pasting two or even three corrective patterns together, lengthening the correction’s lifespan. Once the correction has ended, the price will then begin a high-energy move to the downside, resuming the downward trend that began on February 16 from 3959.25.

What are the alternatives? It’s conceivable that the high of February 16 was not the end of a major uptrend. If that’s the case, then the corrective pattern would be seen as the small beginnings of the next leg up of the uptrend. I consider this to be a lower probability.

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

What does Elliott wave theory say? I’ve zoomed the chart in to get a better view of the corrective pattern, which is wave 4 of Subminuscule degree within a series of 1st waves of increasingly higher degree, up to Micro degree. All of that, in turn, is within an A wave correction of Subminuette degree, within wave 4 of Minuette degree, within wave 5 of Minute degree, within wave 3 of Minor degree. Minor wave 3 began on February 23, 2020 from 2l91.86. on the index.

A 4th wave typically ends within the range of the 4th wave with the preceding 3rd wave. I’ve marked that range with blue lines on the chart: 3820.25 to 3869.25.

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, March 1, 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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