Tuesday, April 20, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continues its downward course from the peak on April 16 of 4183.50 on the futures, 4191.31 on the index. I’ve updated the near-term chart.

10:10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures completed the first leg down at a small degree in a downtrend that began April 16 from 4183.50, reaching a low of 4131.

What does it mean? The overnight decline marks the start of a major movement to the downside that eventually will reach beyond the low of 2191.86 on the index, set on February 23, 2020, in the first month of the pandemic. The overnight low marks the start of small upward correction that will remain below the April 16 high.

What’s the alternative? It’s still possible my labeling of the April 16 high as the end of the rise will prove wrong, if the price rises above 4183.50. The internal count of the rise ending on that date suggests to me that it was indeed the end, but Elliott wave analysis is filled with ambiguities. Time will tell.

[S&P 500 E-mini futures at 3:30 p.m., 10-minute bars, with volume]
[S&P 500 index at 10:07 a.m., 2-day bars]

What does Elliott wave theory say? In the short-term, wave 1 of Bitsy degree ended overnight at 4131 and wave 2 of Bitsy degree has begun its 2nd wave, an upward correction, which is now in its A wave of Subbitsy degree. This is all happening within wave 1 of Subminuscule degree and its parent, wave 1 of Minuscule degree.

In the long term, the April 16 peak of 4183.50 marks the beginning of wave 3 of Minor degree, the next large downward movement of a diagonal triangle that began on December 26, 2018. The boundaries of the triangle are moving away from each other — an expanding triangle — and at this point the current price is near the upper boundary and the lower boundary is around 2054.

It will take time, with many ups and downs on the journey, but the price’s destination is that lower boundary.

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 20, 2021

Disclaimer

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.