SP500 Analysis

Half an hour before the closing bell. The S&P 500 traded below the morning high throughout the day. No change in the analysis. I’ve updated the close-up chart.

11:45 a.m. New York time

My trades. I’ve sold a put against GDX in one of my rare forays into trading naked options, without the benefit of an offsetting purchase to limit my loss. I’ve posted an analysis of the trade. Chart to come.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures pushed higher in overnight trading, reaching 4433.25 shortly after the opening bell. The index shortly after the opening bell reached a new high of 4440.82, eliminating the divergence between the futures and the index described in yesterday’s post after the closing bell.

What does it mean? The uptrend that began on August 3 has resumed its rise after a correction, the first of two that will interrupt the trend.

What’s the alternative? None apparent at this point. The open question is how high the price will go before a significant correction. See the Elliott wave theory section for a discussion.

[Close-up: S&P 500 E-mini futures at 3:30 p.m., 45-minute bars, with volume]
[Big picture: S&P 500 index at 9:35 a.m., 2-day bars]

What does Elliott wave theory say? The present uptrend from August 3 is wave 3 of Minuscule degree. Internally, wave 3 of Subminuscule degree began on August 4. That structure in turn contained within wave 5 of Submicro degree within wave 3 of Micro degree within wave 5 of Subminuette degree, which began on May 13 from 4029.25. The price channel I’ve drawn encompasses the price movement one degree higher, wave 5 of Minuette degree, which began on April 3 from 3720.50.

In setting a target, I’m asking how high Subminuette 5 will travel. The end of its journey will also mark the end of Minuette 5 and its parent, wave 5 of Minute degree, and grandparent, wave 3 of Minor degree. Minor wave 3 began on February 23, 2020 from 2191.86.

The Minor degree brings us to another price channel, this one an expanding diagonal triangle, wave 5 of Intermediate degree, which began on December 26, 2018.

Subminuette 5 is really important. When finished, it will consist of five waves, each wave hitting a higher high or lower low than the prior wave in each direction. That’s the expanding part. The end of Minor wave 3 at the upper boundary will be the beginning of Minor wave 4, which will move down to the lower boundary of the triangle.

So, some targets. The upper boundary of the Minuette degree price channel is in the 4570s and rising. The longer it takes Subminuette 5 to reach the boundary, the higher the target high will be. Subminuette degree is three levels above Minuscule, so under the Elliott wave rule of proportionality, we have some time to go before that boundary is approached. On the diagonal triangle at Intermediate degree, the lower boundary is presently in the 2010s and will have sunk much lower by the time Minor wave 4 reaches it. So the long ride up we’ve experienced since the pandemic crash will be followed by a longer ride down, with the usual corrections in the opposite direction.

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, August 6, 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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