HD Trade

The Home Depot Inc. (HD)

Lot 2022-2

I have entered a short bull put vertical spread on HD, using options that trade for the last time 32 days hence, on September 16. The premium is a $1.87 credit per contract share and the stock at the time of entry was priced at $314.15.

The Implied Volatility Ratio stood at 39.6%.

Premium:$1.87Expire OTM
HD-bull put spreadStrikeOddsDelta
Puts
Long305.0060.0%36
Break-even311.8756.5%39
Short310.0053.0%42

The premium is 74.8% of the width of the position’s short/long spread. The profit zone covers a 0.7% move to the downside and an unlimited move to the upside.

The risk/reward ratio is 1.7:1, with maximum risk of $313 and maximum reward of $187 per contract.

How I chose the trade. The trade was placed to coincide with HD’s earnings announcement, before the openig bell on the day after entry. The short strike was set to coincide with the expected move of $10.87 either way, based on options pricing, which gives a price range of $303.28 to $325.02. The Zacks Investment Research earnings surprise predictor gave HD a score of 0.5%, with a rank of Hold (3). The analysts’ consensus is that HD will announce earnings of $4.95 per share.

By Tim Bovee, Portland, Oregon, August 15, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 resumed its rise early in the session, moving to a new high, slightly above 4300. The reversal confirms the principal analysis. The rise from August 8 is not yet complete. I’ve updated the chart.

1:30 p.m. New York time

HD earnings play entry. I’ve entered a short bull put vertical spread on HD, using options that trade for the last time on September 16, and have posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell after trading resumed overnight, reaching 4249, more than 30 points below Friday’s high, 4282.75.

What does it mean? The rise that began on August 8 from 4133 is nearing its end and indeed may have been completed by Friday’s high. Or not. The two possibilities are of nearly equal probability. My principal analysis, shown in the chart, is that the trend is still underway., based on my practice of assuming a trend is continuing until I have clear evidence to the contrary.

What is the alternative? The rise from August 8 ended on August 12 at 4282.75. The further the price falls, the more likely the alternative analysis becomes.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, the decline is a downward correction within wave 5{-13}, which began on August 9 from 4113. When the correction is complete, the uptrend will resume, moving beyond Friday’s high, 4282.75.

Under the alternative analysis, wave 5{-13} ended on Friday at 4282.75, a point that also marked the end of a series of parent wave: 5{-12} and 3{-11} within 3{-10}, which began on July 14 from 3723.75. Wave 4{-12}, a downward correction, is underway, having begun at Friday’s high.

This is all happening within uptrending wave 1{-9}, which began on June 17, within a much larger downward movement, wave 4{-1}, which began on January 4 from 4818.62.

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, in the ever-changing markets, 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, August 15, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued to climb during the session, reaching above 4276 on the futures. The rise above the overnight high confirms this morning’s principal analysis; the overnight correction has indeed been followed by a resumption of the uptrend.

As has been the case recently, any fresh peak could be the end of the uptrend, which has met of the requirements of Elliott wave analysis. On the other hand, it might still push higher.

In Elliott wave terminology, the present wave set is wave 5{-14} within wave 5{-13} within wave 5{-12} within wave 3{-11} within wave 3{-10}, that last, largest wave of the set having begun on July 14.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to a higher high in overnight trading, 4260.50, and then pulled back a bit.

What does it mean? I’ve analyzed the pullback as a downward correction within the ongoing rise that began on August 9, part of a larger uptrend that began on July 14. The correction likely will be followed by a push to a higher high.

What are the alternatives? The overnight high could have ended the August 9 rise. If so, then it also means the end of the larger rise from August 2, and the still larger uptrend from July 18. The further the price declines today and early next week, the more likely it is that this alternative matches the chart.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]

What does Elliott wave theory say? Under my principal analysis, the overnight high marks the end of the 3rd internal wave, 3{-14}, within wave 5{-13}. The pullback is wave 4{-14}, and it will be followed by uptrending wave 5{-15}, the final wave within wave 5{-13}. Wave 5{-15} is likely to push above the overnight high, although the 5th wave could be truncated, in which case it will end below that prior high.

Under the alternative analysis, the overnight peak is the end of wave 5{-14}, and also the end of parent waves 5{-13}, 5{-12} and 3{-11}. It will be followed by a decline that will correct a portion of the rise that began on July 18.

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, in the ever-changing markets, 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, August 12, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 climbed higher early in the session, peaking at 4260.50 on the futures. It then began to decline, reaching below 4210 as the closing bell approached. 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 continued to rise overnight, reaching a high of 4247 before the opening bell.

What does it mean? The rise from July 14, from 3723.75, is now in the middle wave of a five-wave uptrend. Internally, it is also in its middle wave, which has reached its end game, in its 5th and final subwave.

What are the alternatives? As has been the case the past few days, each peak could be the end of the uptrend, or not. We’ll know the uptrend is complete when it reverses into a significant decline.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]

What does Elliott wave theory say? The uptrend that began on July 14 is wave 3{-10}, the middle wave within wave 1{-9}, which began on June 17 from 4202.25. Working from larger to smaller degrees, here is an inventory of the present wave line-up: Wave 3{-11} began on July 18 from 3920.25; within it, wave 5{-12} began on August 2 from 4080.25; and, still smaller, wave 5{-13} began on August 9 from 4113.

The end of wave 5{-13} will also be the end of waves 5{-12} and 3{-11}. A downward correction, wave 4{-11} will follow, to be followed in turn by a push to higher highs with wave 5{-11}. The end of wave 5{-11} will also be the end of wave 3{-10}, which will begin a 4th wave downward correction.

It is important to remember that all these uptrends and corrections of small degree are happening within huge downtrend, wave 4{-1}, that began on January 4 from 4808.25. It has a long way to go before reaching its end, perhaps down into the 2000s or lower. It will be followed by an uptrend that likely will carry the price above the January 4 high, perhaps into the 4900s or higher.

A note on trades. The earnings season is winding down and so I’m finding fewer options trades that fit my strategy, which is based on earnings announcements. The next earnings season will begin in October, and in the meantime there will be an occasional opportunity worth exploring.

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, in the ever-changing markets, 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, August 11, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose higher during the session, to 4212 on the futures. No change in the analysis. Chart updated.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose sharply as the opening bell approached, reaching 4201.50 before pulling back slightly.

What does it mean? The rise began when the consumer price index came in slightly lower than analysts had expected. The rise moved above the August 8 high, 4188, confirming that the uptrend that began on July 14 is still underway.

What are the alternatives? As always when the market is reaching for a peak, any new high can potentially be the end of the uptrend. Or not. The only way to know for sure is when the price reverses sharply enough to show that a significant decline has begun.

[S&P 500 E-mini futures at 3:30 p.m., 70-minute bars, with volume]

What does Elliott wave theory say? Uptrending wave 3{-10}, which began on July 14 from 3723.75, continues its rise, reaching a high before the opening bell that was 477.75 points above the wave’s starting point.

Internally, I count wave 3{-10} as being in the final wave, 5{-12}, within it’s middle wave, 3{-11}. There is sufficient ambiguity in the internal count to allow it be analyzed as being within wave 5{-11}, the final wave within wave 3{-10}. That alternative would be confirmed by a significant price reversal to the downside. The count I show on the chart would be confirmed by a decline from the peak in a three-wave correction, wave 4{-10}, and then a five-wave push up, wave 5{-10}.

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, in the ever-changing markets, 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, August 10, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has fallen during the session, reaching into the 4110s on the futures. 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 traded in a narrow range overnight, declining slightly and remaining below Monday’s high, 4188.

What does it mean? The rise that began on July 14 from 3723.75 continues. Monday’s high may have marked the end of the middle leg of that rise. If so, after a downward correction, the rise will resume. The further the price declines, the more likely it is that the downward correction is underway.

What is the alternative? Monday’s high may have been a stopping point as the middle leg of the rise from July 14 continues. If so, then the overnight decline is a smaller correction and the rise will resume, perhaps today.

[S&P 500 E-mini futures at 3:30 p.m., 70-minute bars, with volume]

What does Elliott wave theory say? The rise from July 14 is wave 3{-10}. Internally, it is in wave 3{-11}, which began on July 18 from 3920.25, which in turn is in wave 5{-12}, which began on August 2 from 4080.50.

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, in the ever-changing markets, 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, August 9, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has declined during the day from its morning high of 4188 on the futures. The middle leg of a rise that began on July 14 continues and is nearing its end. 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 rose after trading resumed overnight, moving above the prior high to 4177.50.

What does it mean? The last leg of an uptrend that began on July 18 is now it middle and most energetic segment. When complete, it will be followed by a downward correction and then a rise that most likely will reach a higher high. This is happening within a larger upward correction that began on June 17

What are the alternatives? None at the present. Ambiguities will, I’m sure, develop.

[S&P 500 E-mini futures at 3:30 p.m., 60-minute bars, with volume]

What does Elliott wave theory say? The rise that began on July 14, wave 3{-10}, is now in its middle and most energetic wave, 3{-11}, which in turn is in its final segment, wave 5{-12}.

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 5{0} Intermediate, 12/26/2018, 2346.58 (up)
  • 4{-1} Minor, 1/4/2022 4818.62 (down)
  • 1{-2} Minute, 1/4/2022 4818.62 (down)
  • S&P 500 Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 1{-6} Submicro, 1/4/2022, 4808.25 (down)
  • 2{-7} Minuscule, 6/17/2022, 4631 (up)
  • A{-8} Subminuscule, 6/17/2022, 4509 (up)
  • 1{-9} Bitsy, 6/17/2022, 4202.25 (up)
  • 3{-10} Subbitsy, 7/14/2022, 4189 (up)
  • 3{-11} Deci, 7/2022, 4164 (up)

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, in the ever-changing markets, 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, August 8, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded lower during the session, reaching 4103.75 on the futures, nearly 70 points below yesterday’s high. Wave 4{-11}, a downward correction continues within uptrending wave 3{-10}, which began on July 14. No change in the analysis. I’ve updated the upper chart.

10:25 a.m. New York time

ZG earnings play exit. ZG failed to meet earnings expectations by a large margin, and I’ve exited my short bull put options spread for 40.2% of maximum potential loss. I’ve updated the trade analysis with full results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, leaving yesterday’s high, 4173.25, unchallenged.

What does it mean? The rise from July has met all of the requirements for the final leg within a five-step trend. At this point the price has fishing for a peak. If yesterday’s high was the peak, then the middle leg of the larger rise from July 18 is complete and after a correction, the final leg of that rise will reach for a higher peak.

What is the alternative? The middle leg of the rise from July 18 is not yet over and the overnight decline is a smaller correction within that rise.

[S&P 500 E-mini futures at 3:30 p.m., 160-minute bars, with volume]

What does Elliott wave theory say? The fractal nature of market movements is well illustrated within this chart: Waves within waves within waves, each forming the same patterns adhering to the same rules.

Under my principal analysis, the five-wave trend that began on July 18 has completed its middle wave, 3{-12} and begun a downward correction, wave 4{-12}. This is happening with the parent, wave 3{-11} within wave 3{-10} within wave 1{-9}, which began on June 17 from 3639. It is the smallest of a series of increasingly larger rising 1st waves that began on that date.

Under the alternative analysis, wave 3{-12} has not yet completed its rise and will soon move above the prior high, 4173.25.

[S&P 500 index at 9:33 a.m., 3-day bars]

The bigger picture. The S&P 500 index has been forming an expanding Diagonal Triangle since December 26, 2018, from a low that date of 2346.58. The 2nd wave of the triangle — wave 2{-1} — ended on February 23, 2020, the low of the early pandemic crash. The rise that followed is wave 3{-1}. It ended last January 4. The decline that followed is wave 4{-1}. In an expanding Diagonal Triangle, the price tends to retrace 66% to 81% of the preceding 3rd wave, giving a target range between 3085 to 2691. That’s a tendency, not a rule, and the price could well fall even lower, perhaps as low as the triangle’s lower boundary, presently just above 1900.

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 5{0} Intermediate, 12/26/2018, 2346.58 (up)
  • 4{-1} Minor, 1/4/2022 4818.62 (down)
  • 1{-2} Minute, 1/4/2022 4818.62 (down)
  • S&P 500 Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 1{-6} Submicro, 1/4/2022, 4808.25 (down)
  • 5{-7} Minuscule, 3/29/2022, 4631 (down)
  • 5{-8} Subminuscule, 4/21/2022, 4509 (down)
  • 5{-9} Bitsy, 5/30/2022, 4202.25 (down)

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, in the ever-changing markets, 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, August 5, 2022

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
Creative Commons 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.

ZG Trade

Zillow Group (ZG)

Update 8/5/2022: I exited my short bull put vertical spread on ZG, 42 days before expiration, for a $1.61 debit per contract/share, a loss before fees of $19 per contract. Shares were trading at $36.26, down $1.28 from the entry level.

The Implied Volatility Rank at exit was 40.2%, down 25.4 points from the entry level.

ZG missed analysts’ earnings expectations by 81% — they had expected earnings of $0.157 per share prior to the announcement. The company reported earnings of $0.03 per share. I exited at 40.2% of maximum potential loss.

Shares fell by 3.4% over one day for a -1,244% annual rate. The options position produced an 11.8% loss for a -4308% annual rate.


I have entered a short bull put vertical spread on ZG, using options that trade for the last time 42 days hence, on September 16. The premium is a $1.42 credit per contract share and the stock at the time of entry was priced at $37.54.

The Implied Volatility Ratio stood at 65.6%.

Premium:$1.42Expire OTM
ZG-bull put spreadStrikeOddsDelta
Puts
Long30.0075.0%17
Break-even36.4265.5%15.5
Short35.0056.0%14

The premium is 56.8% of the width of the position’s short/long spread. The profit zone covers a 3% move to the downside and an unlimited move to the upside.

The risk/reward ratio is 2.5:1, with maximum risk of $358 and maximum reward of $142 per contract.

How I chose the trade. The trade was placed to coincide with ZG’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $1.37 either way, based on options pricing, which gives a price range of $36.29 to $39.03. The Zacks Investment Research earnings surprise predictor gave ZG a score of 18.79%, with a rank of 3 (hold).

By Tim Bovee, Portland, Oregon, August 4, 2022

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
Creative Commons 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.

Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded in a narrow range during the session, remaining below the overnight high, 4173.25 on the futures. No change in the revised analysis posted at 11:45 a.m., below. I’ve updated the middle chart, showing the futures.

1:50 p.m. New York time

ZG earnings play entry. I’ve entered a short bull put vertical spread on ZG, using options that trade for the last time on September 16, and have posted an analysis of the trade.

11:45 a.m. New York time

S&P 500 re-analysis. As noted this morning, the S&P 500 broke a rule of Elliott wave analysis. I have re-analyzed the S&P 500 to better match the charts. I began at the beginning, the January 6 peak that has defined everything that has happened since.

[S&P 500 index at 11 a.m., daily bars]

The chart shows a clear five-wave decline, with the 5th wave ending on July 17. The 5th wave is the final wave in a trend, so June 17 was a low of great significance.

The uncertainty on any chart is the proper degree labeling: Where does a wave fit, in size, compared to what has come before it. So for this first chart, I used placeholder degree numbering: 1{n0} as a base, 2{n-1} as a degree below it, and so forth.

That gave me two touchstones for analyzing the chart: The January 6 high and the July 17 low. The pattern showed a downtrend followed by an upward correction.

The next task was to assign degrees to the turning points on the chart. For that, I turned to a more detailed view, the S&P 500 E-mini futures.

[S&P 500 E-mini futures at 3:30 p.m., 160-minute bars, with volume]

Any degree assignment is a hunch at best. In this case, the rise that began on June 17 would be consistent with a Zigzag, the kind of correction most often seen in second waves. It would also be consistent with an uptrend following the end of a downtrend. So the choices were upward wave 2, which would mean the June 17 low ended a 1st wave, or an uptrending 1st wave, which would mean the low ended a 5th wave.

The magnitude of things suggested to me that the rise was a second wave. All of the waves from degree {-7} and lower were 5th waves. Therefore, wave 1{-6} seemed to be the best choice for the wave ending on June 17, and wave 2{-6} for the subsequent upward correction.

Under the new principal analysis, the rise from June 17 is wave A{-7}, the first wave of upward correction wave 2{-6}. Wave A{-7} is presently in its initial wave of five in a Zig-zag pattern: Wave {-8}.

I’ve retained the old analysis below for comparison with the new analysis, above.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly higher today, to 4173.25.

What does it mean? That level is above the beginning on June 8 of the present downtrend, from 4164. That breaks a rule of Elliott wave analysis, and I’ll be re-analyzing the chart today.

What are the alternatives? The principal analysis having been thrown into disarray, there are no clear alternatives. They’ll remain unknown until the re-analysis is complete.

The chart. I’ve marked the rule violation and noted a likely re-analysis points, using red labels.

[S&P 500 E-mini futures at 9:35 a.m., 160-minute bars, with volume]

What does Elliott wave theory say? The rule discovered by R.N. Elliott states that a 4th wave cannot move above the start of the preceding 1st wave within the same trend. Wave 1{-12} began on June 8 from 4164. Wave 4{-1} reached a high in overnight trading of 4173.25.

When the map no longer matches the territory, it’s time to redraw the map.

That will take more time than remains before the time I normally post this analysis, at 9:35 New York time. I hope to have a re-analyzed chart by this afternoon’s update. Right now, my best guess is that the downtrend, wave 1{-6}, which began on January 4 from 4808.25, may have ended on June 17 at 36.39, and the rise since then has been an upward correction, wave 2{-6}.

Note that if my best guess is correct, the wave numbers degrees have changed but the pattern has not: The S&P 500 is still in upward correction within a downtrend. More later after the re-analysis.

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 5{0} Intermediate, 12/26/2018, 2346.58 (up)
  • 4{-1} Minor, 1/4/2022 4818.62 (down)
  • 1{-2} Minute, 1/4/2022 4818.62 (down)
  • S&P 500 Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 2{-6} Submicro, 6/17/2022, 4808.25 (up)
  • A{-7} Minuscule, 6/17/2022, 4631 (up)
  • 1{-8} Subminuscule, 6/17/2022, 4509 (up)
  • 1{-9} Bitsy, 6/17/2022, 4202.25 (up)
  • 3{-10} Subbitsy, 7/14/2022, 4189 (up)
  • 1{-11} Deci, 7//2022, 4164 (up)

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, in the ever-changing markets, 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, August 4, 2022

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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