Tuesday, March 23, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 reversed to the downside in trading today after completing a 5-wave uptrend of a small degree — perhaps Bitsy degree, perhaps even smaller. The downside reversal would be correction, and I expect the upward trend to resume soon with another 5-wave pattern. I’ve updated the chart below.

10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued the rise that began on March 19 and at the opening bell was undergoing a lower level correction within that rise.

What does it mean? Completion of the rise, at around the 4000 level, will trigger a correction.

What are the alternatives? The rise could be an upward movement separating two corrective patterns rather than an uptrend

[S&P 500 E-mini futures at 3:30 p.m., 40-minute bars, with volume]

What does Elliott wave theory say? The rise from March 19 is wave 5 of Subminuscule degree. A line connecting the beginning points of Subminuscule waves 3 and 5, with a parallel line passing through the end of wave 3 produces a rather shallow price channel for the Subminuscule degree. If the price were to touch the channel’s upper boundary in the next few days, it would be in the 3980s. Fifth waves have a habit of occasionally breaking through the channel and continuing to rise much higher in an extended wave. And sometimes, 5th waves fall short, failing to exceed the peak of wave 3. So there’s no way to place a definite target for the present 5th wave rise.

Completion of Subminuscule 5 will also be the end of the parent wave, Minuscule 3, and will be followed by a 4th wave correction. Fourth waves tend to be shallow, although not always.

The alternative analysis defines the present rise as an X wave of Bitsy degree, a wave that separates the previous corrective pattern from one that will begin from the peak of wave X. The new corrective pattern would be the third within wave 4 of Subminuscule degree. I haven’t seen three patterns within a corrective wave very often, so I’m treating this as a the less likely prospect.

My trades. On Friday my short iron condor position on NIO will reach 21 days before expiration. If it’s profitable, then I exit on Friday. If unprofitable, then I try to salvage the situation by modifying the untested leg of the iron condor. Presently the position stands at 23% of maximum potential profit.

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
  • {-8} Subminuscule
  • {-9} Bitsy
  • {-10} Subbitsy

By Tim Bovee, Portland, Oregon, March 23, 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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Based on a work at www.timbovee.com.

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