Friday, April 16, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose to new heights today, the futures to 4180.50 and the index to 4188.21, as wave 5 of Minuscule degree and below continued its course. I’ve updated the chart below.

10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures pushed above the upper boundary of the price channel in overnight trading, reaching a high of 4178.50 in the final leg of its rise that began April 14.

What does it mean? Today’s high could be the end of that rise, and indeed of the rise that began April 7. It will be followed by a higher degree correction, most likely of the shallow variety.

What are the alternatives? Although, it needn’t be the end of the rise. There could still be more upside potential into next week.

[S&P 500 E-mini futures at 3:30 p.m., 25-minute bars, with volume]

What does Elliott wave theory say? The overnight rise is wave 5 of Subbitsy degree within a series of 5th waves of increasing size, Bitsy degree within Subminuscule degree within Minuscule degree. And all of that is within wave 3 of Submicro degree, the degree of coming 4th wave correction. Submicro 3 began on March 25.

The question is at what point does Subbitsy wave 5 come to an end. There is no set length for 5th waves, as long as the preceding 3rd wave isn’t the shorter than both waves 1 and 5, and so each new high is potentially the end of wave 5, or potentially just another milestone on the continuing rise.

My trades. Having exited NIO for a profit yesterday, I looked at the possibility of entering another position using the options that expire May 16. By my rules, the entry window closed on April 13, but for a good enough trade, I could fudge the rules by a day or two. Two sufficiently liquid stocks — SNAP and TWTR — have implied volatility ranks (IVR) of 30% or higher. However, SNAP publishes earnings on April 22 and TWTR, on April 29. I don’t hold options positions through earnings announcements — too many unknowns — and so I’m passing the opportunity.

My next entry window, for trades using options expiring June 21, has an entry window open from April 27 to May 11, with May 4 being the midpoint that I usually prefer.

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 16, 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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