Thursday, April 15, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P touched the upper boundary of the price channel, with highs of 4162.50 on the futures and 4169.58 on the index. As the closing approached the price hovered slightly below high point. Based on the form on the chart, it appears to me that the rise has another push higher at a very low degree before the correction begins. I’ve updated the chart below.

2:15 p.m. New York time

My trade. I’ve updated the entry analysis of my short bear call options position on NIO with full results and a discussion of my exit decision. The options used to build the position expire on May 16. The window for trading May 16 options expired two days ago. Nonetheless, I’ll take a look to see if there’s anything interesting enough to allow me to fudge my rules. Another NIO trade is out, as the implied volatility rank has fallen sharply, to 11% at exit. My rules require 30% or better.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reversed overnight, climbing from a low of 4129.50 climbing to 4148 shortly after the opening bell. The high so far on the index is 4156.56. The reversal followed a sharp one-day decline on Wednesday.

What does it mean? The reversal is in light with yesterday’s closing analysis: “The decline will be followed by a rise back toward the upper boundary of the channel, now in the low 4150s, and perhaps overshoot the boundary in the final rise” of small degree. Once the rise is complete, the price will begin a shallow correction at a higher degree.

What are the alternatives? It’s possible that the final upward push will be truncated, and the high so far this morning could in fact be the end of the rise.

[S&P 500 E-mini futures at 3:30 p.m., 20-minute bars, with volume]

What does Elliott wave theory say? Wave 5 of Bitsy degree began with the overnight reversal and continues its upward course toward the upper boundary of the Subminuscule degree price channel, marked in red on the chart. Bitsy 5 is within wave 5 of Subminuscule degree, and, in increasing size, within wave 5 of Minuscule degree, wave 3 of Submicro degree and wave 3 of Micro degree. The simultaneous completion of wave 5 of Bitsy, Subminuscule and Minuscule degree will be followed by a 4th wave correction one degree higher, at the Submicro degree.

My trading. I exited my short bear call options spread on NIO for $0.38 per contract/share, or 49.3% of maximum potential profit. My goal is 50%, so I count it as a win. I’ll update the entry analysis with results later today.

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 15, 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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