Buying a put or a call is the simplest way to trade options. If you think the price is going up, buy a call. If down, buy a put. None of this long-short-spreads-condors-diagonals-calendars strategic strutures that produce confusion, and yet are so beloved by experienced traders (myself included).

Despite the ease of execution, buying calls and puts is a quick, low overhead way of making trades. It has the added bonus of working best with low implied volatility symbols and so can be attractive trades in those times when there are few high-volatility trades on the table.

With all of that in mind, I’ve spent some time pondering a rule set for long options trades.

Long options are debit trades: The trader hands over the money and gets the contract in return. The profit comes when the trader is able to sell the contract for more than buying price.

One attractive characteristic is that the risk is limited — to the price paid for the contract — and the reward is unlimited.

One unattractive characteristic is that as a long position, it is subject to time decay, or theta in the jargon of options. Theta is a loss of value as the contract approaches expiration. A study I ran across concluded that the rate of time decay begins to increase 60 days before expiration. So that inescapable characteristic is something every long option trader must be mindful of.

The solution to time decay, of course, is to buy options that have more than 60 days until expiration and exit them before time decay grows swifter. That necessity frames all long option trades.

No matter how long until expiration, there is always some time decay. To me, that suggests that the best use of long options is for relatively short-term trades — days or weeks rather than months.

With all of that in mind, here are my trading rules.

Low Risk: Long Options

• A long option position should be entered upon an entry signal, no less than 70 days prior to the contract’s last day of trading.
  • The closer to the last day of trading an option is, the cheaper the option’s price will be.
• The option traded should be at the money or slightly out of the money at entry, with a Delta of 50% being the preferred positioning.
• The option must be sold upon receipt of an exit signal.
• A position must be managed no less than 63 days prior to the contract’s last day of trading.
  • Management consists of exiting the trade, whether it produces a profit or a loss.
  • If the stock is expected to continue to moving in a profitable direction for the option, then the position can be reestablished with a later expiration date.

Each trader will have her or his signal for entry and exit. My preference is for technical signals that produce clear buy and sell signals, such as the RSI, the MACD or the Fisher Transform. For my trades I use the Fisher Transform.

---

And that’s it. Initially I’ll be focusing on exchange-traded funds and will consider branching out later.

By Tim Bovee, Portland, Oregon, September 30, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures peaked at 4389 and reversed in rapid downturn. The peak on the index was 4382.55. The peak ended the 4th wave within wave C of Submicro degree and began the downward movement of a 5th and final wave, whose completion will either end the larger wave 4 of Micro degree correction or begin a second corrective pattern that will extend the correction. I’ve updated the chart.

2:15 p.m. New York time

Another new options position. I’ve entered a long put position on XLY following a sell signal from the Fisher Transform and have posted the analysis.

1:05 p.m. New York time

New options position. I’ve entered a long call position on GLD based on a buy signal from the Fisher Transform and have posted the analysis.

11:45 a.m. New York time

New trading rules. In a break with my usual strategic complexity, I’ve drawn up some trading rules for the simplest of trades: Buying long calls and puts.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to stairstep upward overnight.

What does it mean? The penultimate leg within the final leg of the downward correction that began September 3 is underway. When the present rise is complete, the price will resume its decline, possibly to new lows, which will be followed by a resumption of the uptrend that began on February 23, 2020, reaching to new highs.

What’s the alternative? When the present corrective pattern is complete, it might be followed by a second corrective pattern, delaying the start of the uptrend.

What does Elliott wave theory say? The present wave is a rising 4th wave of Minuscule degree within a declining C wave of Submicro degree within a declining wave 4 of Micro degree, which began on September 3. When the 4th wave correction is complete, it will be followed by wave 5 of Micro degree, a continuation of wave 2 of Minor degree, which began in February 2020.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 30, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 traded in a narrow range during the session, remaining below the overnight high of 3878.75. No change from this morning’s analysis, and I’ve updated the chart.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose in overnight trading as the final leg of a larger correction continued its downward course. The price has remained above yesterday’s low of 4334.75.

What does it mean? The end of the final leg will mark the beginning of a rise to new highs, or a shorter rise connecting two corrective patterns.

What’s the alternative? I can’t choose between the two alternatives at this point.

What does Elliott wave theory say? The overnight rise was wave 4 of Minuscule degree within wave C of Submicro degree with a descending correction, wave 4 of Micro degree. The end of wave C will either mark the end of wave 4, igniting a 5th wave rise above the September 3 high, 4549.50 on the futures. Or wave C will be followed by a small rise, an X wave that will be followed by another corrective pattern.

Earlier in the week there was some ambiguity as to the nature of wave 4: Is it a sideways correction, called a “Flat”, or a directional, called a “Zigzag”. i’ve settled on Zigzag for the following reasons.

Waves A and B of Submicro degree both have five waves internally, at the Minuscule degree. Wave C also appears to be headed for five waves. A Flat pattern internally is three waves within the larger A wave, three within the B and five within the C — often expressed as 3-3-5. A Zigzag pattern internally is 5-3-5.

So what are we to make of the five waves within wave B? The next to the last wave in a correction can take the form of a Triangle, with an undefined number of waves. The internal wave count is often five, but I’ve seen as many as nine. in this case, the five waves within wave B form a Triangle and will be followed by the normal five-wave pattern of wave C within a Zigzag.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 29, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to decline throughout the day, reaching a low so far of 4334.75. The decline was sufficient to suggest that wave B of Submicro degree won’t reach a 90% retracement of the preceding wave A. That being the case, for reasons discussed below, the form of the correction, wave 4 of Micro degree, is a Zigzag, or potentially a Triangle of some sort, rather than a Flat. I’ve changed the labelling on the chart to match a Zigzag scenario.

Under the Zigzag analysis, wave B of Submicro degree ended yesterday at 4472 on the futures, and the subsequent decline, wave C of Submicro degree, has so far fallen to 4334.75, and as a Zigzag is likely to drop below the end of wave A, 4293.75.

The end of wave C in a simple correction will mark the end of wave 4 of Micro degree, which will be followed by the rise of wave 5 of Micro degree to new heights. If the correction takes a compound form, then the of wave C will be followed by a separator wave, which I label as wave X, to the upside, and then a second corrective pattern, perhaps another Zigzag, or perhaps a Flat. Long story short: The S&P 500 is at a crossroad with many possible paths to choose from.

1 p.m. New York time

Options calendar. Today marks the opening of my trading window for using options expiring November 19. The window remains open through October 12, with October 5 being the optimal trading date. See my trading rules for details.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell 84 points from yesterday’s high, 4472, to the overnight low, 4388.

What does it mean? The high is 52 points below a 90% retracement — 4523.93 — of the decline from September 3 to September 20, If the price reverses and reaches the 90% retracement level, then the correction that began September 3 is a sideways, Flat pattern.

What’s the alternative? If the price continues to decline, the correction is taking some other pattern, most likely a direction Zigzag pattern.

What does Elliott wave theory say? The rise that began September 20 is wave B of Submicro degree, the middle wave within its parent, wave 4 of Micro degree, which began on September 3.

It is wave B that will determine the nature of the correction. In a Flat pattern, the B wave always retraces at least 90% of the preceding A wave. That would mean a rise to 4523.93 in this case. In a Zigzag pattern, the B wave usually will retrace 50% to 79% of wave B, which it has done. So far B has retraced 70% of wave A.

There are other patterns with other B-wave retracements, but Flat and Zigzag are the most common.

Another tendency is for wave 4 to take a different pattern than wave 2. Micro wave 2 in this case was a Zigzag, and so the present wave 4 is likely to be a Flat. “Likely” isn’t a firm rule, so perhaps this will turn out to be an exception.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 28, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

1:30 p.m. New York time

Two and a half hours before the closing bell. I’m breaking off early in order to get a Covid-19 booster jab. The S&P 500 has barely budged during the regular trading session. No change in the analysis. I’ve updated the chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a high of 4472 in overnight trading and then fell.

What does it mean? If the correction that began September 3 is a sideways pattern, as I think it will prove to be, then the rise that began September must reach at least 4523.93 before it ends, a 90% retracement of the preceding decline that began September 3. Under this pattern, the decline which will follow the present rise will return to the 4290s.

What’s the alternative? If the rise falls short of 4523.93 then the correction is tracing a more directional pattern. I.e., at it’s completion, it likely will reach a lower level than the 4290s, probably much lower.

What does Elliott wave theory say? The decline from September 3 is wave 4 of Micro decree, which appears to be taking a Flat pattern. Internally, the price is in wave B of Submicro. Within a Flat correction, the B wave must retrace at least 90% of the preceding A wave. In this correction, that means the price must rise to at least 4523.93.

If the price moves above 4523.93, then the wave 4 pattern is something other than Flat: Perhaps a Zigzag or a Triangle of some sort.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 27, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 a.m. New York time

Half an hour before the closing. The S&P 500 fell in overnight trading and then rose during the day, remaining about 40 points below yesterday’s high. No change in the analysis. I’ve updated the upper chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined in overnight trading, from a high of 4455.

What does it mean? The decline is a downward correction within the middle, rising wave in a larger downward correction. The middle wave has not yet reached its target; see the Elliott wave theory section, below.

What’s the alternative? If the middle wave fails to reach that target, then the form taken by the larger correction is different than I expected. More below in the Elliott wave theory section.

Charts. The upper chart examines the near term, from the beginning of September. The lower chart examines the long term, from the start of October 2018. The Fibonacci retracement ladder on the near-term chart shows retracement of wave 3 of Micro degree, which began on May 19.

What does Elliott wave theory say? First, the near term. The rise that began September 20 is wave B of Submicro degree within wave 4 of Micro degree. I expect the 4th wave to take the form of a Flat — a shallow correction, alternating with the Zigzag form of the preceding 2nd wave.

In a Flat, wave B must retrace at least 90% of the preceding wave A — that’s a firm rule in Elliott wave analysis. A 90% retracement of the A wave that began on September 3 would bring the price up to 4523.93. Wave B’s high so far is 4455, so the wave has at least another 69 points to go before meeting that requirement.

Although the alternation of form between a 2nd wave and a 4th wave is common, it’s not a requirement in Elliott wave theory. Although 2nd waves tend to take the Zigzag form and 4th waves, the Flat form, it is not unheard of for both to be Zigzags or both to be Flats. If the 4th wave is taking a Zigzag form, then wave B commonly retraces 38% to 79% of wave A. The Zigzag retracement range would be from 4391 to 4497, and so wave B has met this tendency (not a requirement).

Next, the long term. The expanding Diagonal Triangle of Intermediate degree that began December 26, 2018 is still underway. With it, wave 3 of Micro degree ended on September 3 and wave 4 of Micro degree is now underway. The 4th wave will eventually reach, come near to or exceed the lower boundary of the Diagonal Triangle, which keeps moving lower every day. At present, the boundary stands at about 2000. The 4th wave will be followed by a 5th wave back to the upper boundary, which is moving higher every day. The end of wave 5 of Micro degree will mark the Diagonal Triangle, and the end of wave 5 of Intermediate degree, as well as the end of 5th waves the next three levels higher, of Primary, Cycle and Supercycle degrees, the latter having begun in the Great Depression of the 1930s. (In several earlier posts I misidentified the Supercycle degree underway as the 3rd wave. The 5th wave is correct.)

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 24, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half the hour before the closing bell. The S&P 500 moved above the 23.6% Fibonacci retracement level during today’s trading session. The present rise, wave B of Submicro degree, can be expected to retrace 90% or more of the preceding wave A, which gives an upside target of at least 4523.93. After the B wave peaks, a C wave will carry the price down to the low 4300s or a bit below, completing the corrective pattern within wave 4 of Micro degree.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise in overnight trading.

What does it mean? The rise is, possibly, the final leg of a smaller upward correction that began on September 20, within the middle leg of a larger downward correction that began on September 3. The correction could extend in a compound pattern — two corrective patterns in a row.

What’s the alternative? It’s possible that the smaller upward correction is one level smaller than my labelling would indicate, meaning that the correction has further to go that I thought.

What does Elliott wave theory say? The analysis is unchanged from yesterday’s post: A rising wave B of a Submicro degree correction within a declining wave 4 of Micro degree correction. Submicro wave A fell from its September 3 starting point down to a Fibonacci retracement level of 50% of the preceding wave 3 rise. Submicro wave B has risen to just below the 23.6% retracement level.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 23, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its rise throughout the day. Wave 3 of Minuscule degree within wave B of Submicro degree continues. No change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures in overnight trading continued to work their way up the second part of an upward correction that began September 20.

What does it mean? A corrective pattern comes in three parts — down, up, down in this case — and the correction is presently in the middle, rising portion of its pattern. Internally, the middle leg has completed two waves and is presently in its third.

What’s the alternative? The open question is the relative size of the waves internal to the middle leg. More on that in the Elliott wave theory section, below.

What does Elliott wave theory say? The present correction is wave 4 of Micro degree. It is taking the form of a Flat, which means that internally, waves A and B will have three waves, and wave C will have five. Because of the fractal nature of market patterns, each internal wave within A, B and C will have its own, smaller internal waves that fit the patterns of Elliott wave theory. The patterns of the markets are identical at all levels, from a 50-year chart with quarterly bars down to the a daily chart with one-minute bars.

Waves A, B and the future C are of Submicro degree, and I have labelled the internal waves one level smaller, as Minuscule degree. But is that correct? Assessing the relative size of a wave in an ongoing pattern is often a matter of luck and intuition. If my Minuscule degree labelling is correct, then wave B will have three waves internally. If those waves should instead be one level lower, at Subminuscule degree with a subscript {8}, then we can expect five waves before Minuscule wave 1 within Subicro wave B is complete.

The price is presently near a 38.2% Fibonacci retracement of the preceding wave 3 of Micro degree, or 4360.79. The next major stopping point on the Fibonacci ladder is 23.6%, and the price at that level is 4432.92.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 22, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 completed the first of three parts of its rise that began yesterday and began the second part, a downward correction within an upward correction. In Elliott wave terms, wave B of Submicro degree began yesterday, the present decline is wave 2 of Minuscule degree. Alternatively, what I’ve labeled as Minuscule degree could be one level smaller, a movement of Subminuscule degree, meaning that Minuscule wave 1 is still underway. As labeled, it’s an awfully short 1st wave, covering only 100 points of a retracement of a decline that covered nearly 260 points. I’ve updated the chart. No change in this morning’s analysis.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reversed from yesterday’s low of 4293.75, rising to 4395.74 in overnight trading.

What does it mean? Yesterday’s low marked the the first part of a three-part correction that began on September 3, and the subsequent rise is the beginning of the second, middle segment of the correction.

What’s the alternative? The still open question is what size the first two movements are in relation to the broader scope of the market. I discuss the issue in the Elliott wave theory section, below.

What does Elliott wave theory say? As I noted yesterday, the size of the decline from September 3 suggested that the small-degree labels I had tentatively used for the decline need to be revised. And I have revised them, moving the decline from September 3 to September 20 up by two degrees, from wave 1 of Subminuscule degree to wave A of Submicro degree. The deciding factor was the movement of the price down to a 50% Fibonacci retracement of wave 1 of Micro degree. For a sideways correction, that’s about as much retracement as I can reasonably expect. So the decline defines the whole initial wave of the correction rather than a subwave within that initial movement.

So, the context. The low of September 20 marked the end of wave A of Submicro degree within a correction, wave 4 of Micro degree, within wave 5 of Subminuette degree, within wave 5 of Minuette degree, within wave 5 of Minute degree, within wave 3 of Minor degree, which began more than a year ago,on February 23, 2020, from the low 2000s.

But dropping back to the small scale, how do we know that wave A of Submicro degree is complete? The two most common corrective patterns are Zigzags and Flats. Zigzags cover more territory than Flats, and the two alternate; if a 2nd wave is a Zigzag, then the 4th wave will almost always be a Flat. The number of subwaves within each segment of the correction provides a clue as to the form that market is tracing out. A Zigzag has five waves in the first segment, three in the middle, and five in the final segment, a 5-3-5 pattern. A Flat has a 3-3-5 pattern.

On the chart, the decline from September 3 to September 20 has three subwaves internally, suggesting that we’re seeing a Flat pattern for wave 4. Also, the preceding wave 2 correction was a Zigzag, so a Flat an be expected for the 45th wave.

We can expect to see three waves to the upside for wave B of Submicro degree, and then a C wave back to around 4300. At that point, either the wave 4 of MIcro degree correction is over and wave 5 of Micro degree has begun, eventually carrying the price to new heights. Or, as often happens, there will be an X wave to the upside that will divide the first corrective pattern from a second one in a compound structure.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 21, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to fall during the day, reaching below 4300. The decline brings wave 4 of Micro degree into the region of a 50% Fibonacci retracement of the preceding 3rd wave. That’s good stopping point. However, internally the wave 4 of Micro degree is still in wave A of Submicro degree. If it’s a sideways Flat-pattern correction, then that would work. If it’s tracing out a Zigzag correction, then it has further to go to the downside.

Given the distance covered by the decline, it’s possible that what I’ve labelled as Bitsy degree is instead a larger degree, perhaps Minuscule, subscript {-7}.

I’ve updated the chart, adding in a Fibonacci retracement ladder for wave 4 of Micro degree, which began on September 3 at 4549.50. The preceding 3rd wave began on May 19 from 4055.5 and ended on September 3.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures resumed trading early in the evening yesterday at 4411.75 and fell, reaching a low of 4340 shortly after the opening bell.

What does it mean? The sharp decline removes any ambiguity about whether the low-level correction that began on September 15 is complete. It ended later that same day, and the subsequent decline is a resumption of the main downward trend that began on September 3.

What’s the alternative? It remains possible that the decline from September 3 is a correction within the uptrend that began on May 19 from 4055.50. The lower the decline, the less likely this alternative becomes.

What does Elliott wave theory say? In Friday’s post I said that over the weekend I would re-visit my analysis that labelled the September 15 peak as the end of wave 2 of Bitsy degree. I decided at the time that the label was correct, despite the truncated nature of that 2nd wave. The overnight decline supports my decision.

The decline from September 15 is wave 3 of Bitsy degree within wave 1 of Subminuscule degree within wave 1 of Minuscule degree.

Then it gets complicated. Minuscule wave 1 is within a correction, wave A of Submicro degree within wave 4 of Micro degree, which will likely prove to be a sideways correction. That 4th wave is correcting the 3rd wave that came before it — both of Micro degree. That 3rd wave of Micro degree began on May 19 from 4055.50 and ended on September 3 at 4549.50.

The correction is already at the 38.2% Fibonacci level. The next one down is the 50% Fibonacci level, at 4302.50. Either level would be definable as a shallow correction, a characteristic that is common in 4th waves.

The end of Bitsy wave 3 will be followed by a small 4th wave correction to the upside, and then a decline to a new low in the movement. I think that makes the 50% Fibonacci level the more likely end point, but that’s an intuitive guess, not a prediction.

I’m confident enough that wave 4 of MIcro degree is underway that I’ve removed from the chart the price channel for wave 3 of Micro degree.

The end of wave 4 of Micro degree will be followed a rising wave 5, which will carry the price above the September 3 high, 4549.50 on the futures, 4545.85 on the index. The completion of that 5th wave will also mean the end of a series of increasingly larger 5th waves leading up four levels to wave 3 of Minor degree, the rise that began on February 23, 2020 in the low 2000s at the end of the early pandemic crash. The following 4th wave of Minor degree will carry the price down to 2000 or lower.

The alternate scenario, that wave 3 of Micro degree is sill underway, seems less and less likely, given the power of the overnight decline. However, each degree is a structure of its own, and a powerful move at Bitsy degree doesn’t necessarily have meaning for a great-great-great grandparent degree like Micro.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, September 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.