Wednesday, March 3, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to decline throughout the day in the early stages of what will develop into a significant downtrend. The decline is wave 5 of Subminuscule degree, and within that wave the price is working through wave 3 of Bitsy degree. I’ve updated the chart below.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures have completed an upward correction and in overnight trading resumed their downtrend.

What does it mean? The early stages of the downtrend will carry the price below 3801.50, the low of February 26, and ultimately, months from now, down to around 2000, the lower boundary of the massive Diagonal Triangle that began in December 2018.

What are the alternatives? It’s possible that the correction is forming a compound pattern, gluing together several corrective forms, and if so, it will continue awhile longer, delaying the resumption of the decline. Confirmation of the downtrend won’t kick in until the price moves below 3801.50.

[S&P 500 E-mini futures at 3:30 p.m., 45-minute bars, with volume]

What does Elliott wave theory say? The upward corrective movement was wave 4 of Subminuscule degree, whose high point was 3812. The resumption of the downtrend is wave 5 of Subminuscule degree, all of this happening within wave 1 of Minuscule degree, the smallest of a nested series of 1st waves up to Micro degree.

The completion of Subminuscule 5 will also mark the end of the 1st waves up to Micro degree and the beginning of a 2nd wave correction of Micro degree. Second waves have a tendency to retrace a great deal of the preceding 1st wave of the same degree. On this chart, Micro wave 1 peaked on February 15 at 3959.25, and I expect the future 2nd wave to approach 3900 and perhaps even exceed it. It will be followed by an energetic 3rd wave decline that will move well below the end of Micro wave 1, which has not yet occurred.

So, looking ahead in summary: A drop below 3801.50 by an unknown amount, an upward retracement, approaching and perhaps exceeding 3900 while remaining below 3959.25, and then a dramatic decline to a level that is below anything we’ve seen since February.

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 3, 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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