Wednesday, April 21, 2021

3:30 p.m. New York time

Half an hour before the opening bell. The S&P 500 has risen sharply at a very small level during the trading day, suggesting to me that the high of April 16 is not the end of the uptrend. In other words, I’m starting to lean toward this morning’s alternate conclusion.

Here’s a rough and ready chart that suggests what the alternate count would look like. I’m not ready to fully commit to it.

[S&P 500 E-mini futures at 3:30 p.m., 15-minute bars, hypothetical alternate count]

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued their downward move, reaching the late stage of the first declines of small degree from the high of 4183.50 reached on April 16.

What does it mean? Just as every avalanche begins with the loosening of a few flakes of snow, so a major downtrend begins with small declines and rises in the the five-way pattern of any trending market. This is where the avalanche metaphor breaks down. The first low degree decline is part of a larger degree, and the present decline will be followed soon by an upward correction that will remain below the high of April 16. Think of it as an avalanche in reverse.

What’s the alternative? It’s possible to the count the chart in a way that shows the high of April 16 was not the end of an uptrend. If the price rises above 4183.50 on the futures, 4191.31 on the index, then the uptrend is still underway.

[S&P 500 E-mini futures at 9:44 a.m., 10-minute bars, with volume]

What does Elliott wave theory say? The first loose flakes of snow in the present early days of an avalanche are at Bitsy degree, a degree so small that R.N. Elliott had no name for it. Presently the 1st degree of that small downtrend is in Subbitsy wave 4, which will be followed by Subbitsy wave 5 to the downside, completing the 1st wave of the Bitsy degree.

What follows will be an upward correction, most likely a simple Zig-zag pattern of three waves that will take back much of the decline since April 16 while remaining below the April 16 peak of 4183.50. The upward correction will be followed by wave 3 of Bitsy degree, which is likely to be quite a bit more energetic than was its 1st wave counterpart.

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 21, 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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