Tuesday, April 6, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 inched up to a new high today, 4076 on the futures and 4086.23 on the index. The present wave 3 of Submicro degree is still shorter than the preceding wave 1. Although it’s not a requirement, wave 3 is normally the longest. The 1st wave was 258 points long, and the price, marked on the chart, where the 3rd wave equals the 1st is 4101.75. Failure to rise above that level would a reanalysis of the wave count. I’ve updated the chart.

2:20 p.m. New York time

Trade entered. I’ve entered a bear call options spread on NIO and have posted the analysis.

1:45 p.m. New York time

Trade selected. I’ve decided to go with NIO out of my three potential options trades. BIDU is a bit less liquid than the other two, and SNAP has some ambiguities on the chart that make it hard for me to analyze its prospects. Plus, NIO was also my last trade, so I have a well-analyzed chart to work from. I’ve submitted the order for a bear call spread and will post the analysis once I get a fill.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded within a very narrow range overnight, staying slightly below yesterday’s high, 4074.50.

What does it mean? The pause in the rise that has driven the market since late March may be the start another correction within the upward movement. When the correction is complete, the next move will be a push to the upside, completing the rise from 3843.25 that began on March 25.

What are the alternatives? The overnight pause may be a lower level movement, and if that’s the case, then the rise that began on March 25 will quickly resume.

[S&P 500 E-mini futures at 3:30 p.m., 75-minute bars, with volume]

What does Elliott wave theory say? The rise that began on March 25 is wave 3 of Submicro degree, and the correction that follows, either now under the principle analysis or later under the alternative, will be Submicro 4. I expect it to be a shallow correction, and it will be followed by Submicro 5, which will complete the parent, wave 3 of Micro degree.

Micro 3 will be followed by another, larger 4th wave correction and then another, larger push to the upside that will complete the yet higher wave (grandparent?), wave 1 of Subminuette degree.

Trading. Today is the optimal day for me to enter a trade in options that expire 45 days out, on May 21. The U.S. tech company SNAP and two Chinese companies, the automaker NIO (the Tesla of China) and the internet services giant BIDU, are the only prospective trades with implied volatility ranks of 30% or greater. I’ll be analyzing all three today to pick which short options spread position I’ll enter.

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, April 6, 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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