Thursday, March 4, 2021

3:30 p.m. New York time

Half an hour before the closing bell. For the first time since January 6, the S&P 500 fell below the upper boundary of the Diagonal Triangle that began on December 2018 and has defined the future movement of the price for more than three years. That serves as yet another confirmation that a major downtrend is underway. I’ve updated the chart from this morning and added a big-picture chart.

[S&P 500 index at 3:27 p.m., 2-hour bars]

2:10 p.m. New York time

My trades. I’ve posted an update with results of my short iron condor options position on IWM. It can be found here.

1:15 p.m. New York time

My trades. I’ve exited my short iron condor position on IWM for a profit and shall update the trade analysis shortly with results and how the trade performed in relation to my Elliott wave analysis.

10:10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined overnight, reaching a low of 3777.50 and then beginning a sideways movement. The decline from Wednesday’s overnight peak of 3895 covered 117.50 points.

What does it mean? The price moved below 3801.50, which was the low February 26, thereby confirming that the upward correction of late February had ended and the downtrend had resumed. Although the downtrend is in its early stage, it is a a time of small beginnings the portend large events. In other words, hang on tight. It will be an interesting roller coaster ride.

What are the alternatives? I see none at this point.

[S&P 500 E-mini futures at 3:30 p.m., 50-minute bars, with volume]

What does Elliott wave theory say? The downward movement that began on Wednesday is wave 3 of Bitsy degree, a very small movement with large implications. It is was typical of third waves in that it covered a lot of ground quickly. Although Bitsy 3 is small, it’s movement below the end of the previous 3rd wave of the same degree confirms that the wave 2 upward correction was completed on March 3. The 3rd wave ended this morning and the price began working through the 4th wave of Bitsy degree, which appears to be tracing a shallow corrective pattern called a Flat. Bitsy 4 will be followed by a 5th wave resumption of the downtrend, a decline that can either be short and quick or can stretch out and cover quite a large distance.

The movement is occurring within Bitsy’s parent degree, wave 5 of Subminuscule degree, which began on February 15 from 3959.25. The completion of Subminuscule 5 will mark the end of a series of nested 1st waves reaching three degrees higher, up to wave 1 of Micro degree, and above that, wave A of Subminuette degree and, up another degree, wave 4 of Minuette degree. So the completion of wave 5 of Subminuscule degree will trigger a nested series of upward 2nd wave corrections.

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 4, 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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