Friday, March 5, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its 4th wave upward correction, reaching 3839 at its highest point, with the trading day not yet ended. I’ve updated the chart.

10:05 a.m. New York time

What’s happening now? The S&P 500 E-mini futures completed a small downward move and began an upward correction, that briefly carried the price back above the upper boundary of a Diagonal Triangle that began in December 2018 before dropping below the boundary again, while remaining above yesterday’s low, 3720.50.

What does it mean? The correction is the second one within the low-level downtrend that began February 15, and so it will typically be a shallow correction, perhaps fluctuating along the triangle’s upper boundary.

What are the alternatives? A price rise above 3912, the March 1 beginning of present leg of the decline will trigger a full chart reanalysis.

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

What does Elliott wave theory say? We’ve reached a point filled with ambiguity, a not unheard of condition at transition points, and we shall have to wait for those ambiguities to be resolved. The big difficulty, as is often the case, is the pesky 3rd wave problem. The 3rd wave cannot be the shortEST of the three moving in the direction of the trend: Waves 1, 3 and 5. That is a firm rule in Elliott wave analysis.

And so, I renumbered the 2nd wave correction of Subminuette degree to avoid having the 3rd wave be the shortest. Nonetheless, the 1st wave at 215.50 points long has a greater length than the 3rd wave at 191.50 points long. So either the future 5th wave of Subminuette degree will need to be shorter than 191.50, or the 3rd wave is not yet over and will require reanalysis.

My trades. Having exited yesterday from my short iron condor options position on IWM, I’m looking for my next trade. The next series coming up are the options expiring April 16. By my rules, the ideal entry date was March 2 (45 days before expiration), and the acceptable range of dates for entry ends on March 9. The market is low volatility at this point. I prefer an implied volatility rank of 30% or higher, 25% at an absolute minimum. No liquid exchange traded funds meet that criteria, and only two stocks: NIO and JD, both of them Chinese companies whose shares carry higher currency and regulatory risks. So no entry today. I’ll take a look again Monday and Tuesday of next week in the hope of some improvement.

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 5, 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.

Creative Commons 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