Thursday, April 22, 2021

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined during the day, the futures coming within 5 points of the low set on April 20. The movement doesn’t decide the question posed this morning: Is the bullish alternative count or the bearish alternative count the correct view of the chart? So we’ll head to the closing bell still puzzling over the ambiguity of the Elliott wave analysis. Interestingly, though, the volume picked up on the decline. So perhaps that’s a hint. Chart updated below.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures leveled off somewhat in overnight trading.

What does it mean? The sudden rise has thrown the chart into a high degree of ambiguity with no clear guidance on which alternative is most likely. One alternative is bullish, treating the decline since April 16 as a correction within an ongoing rise. The other is bearish, treating the decline as the beginning of a new downtrend. At this point I haven’t a clue as to which one will play out in the next weeks.

[S&P 500 E-mini futures at 3:30 p.m., 35-minute bars, with volume]

What does Elliott wave theory say? In the bullish scenario, the decline from April 16 is wave 4 of Bitsy degree, and internally wave A is complete and wave B is either in progress or complete. Bitsy wave 4 will be followed by a push to new highs — Bitsy wave 5.

In the bearish scenario, the decline from April 16 is wave 1 of Bitsy degree, and internally wave 1 is complete and wave 2 is underway and nearing completion. Bitsy wave 2 will be followed by a further, more energetic decline.

If the price moves above the peak of April 16 (4183.50 on the futures, 4191.31 on the index), and if the rise from April 20 has three waves internally, then the bullish scenario is correct.

If the price reverses downward to a significant degree and if the rise from April 20 has three waves internally, then the bearish scenario is correct.

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 22, 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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