SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 spent the day trading within a barely visible extremely narrow range, working it way upward by a few points. I’ve updated the chart. No change in the analysis.

3:10 p.m. New York time

My trading. I’ve exited my short naked option position on GDX, after three days. The results may be found here, along with the reason why.

9:35 a.m. New York time

Posted over the weekend. Trading rules for diagonal options spreads.

What’s happening now? The S&P 500 E-mini futures fell in overnight trading to 20 points below Friday’s high of 4433.25.

What does it mean? By my principle analysis, the decline is a correction within the ongoing rise that began on August 4.

What’s the alternative? That Friday’s peak marked the end of that rise, and a downward correction — probably a shallow one — has begun.

[S&P 500 E-mini futures at 3:30 p.m., 40-minute bars, with volume]

What does Elliott wave theory say? The rise from August 4 is wave 3 of Subminuscule degree. My principle analysis has wave 3 still underway. The alternative says that wave 3 ended at Friday’s peak (August 6), and that Subminuscule wave 4 has begun.

My reasoning for the principle analysis is this: Most commonly in an uptrend, the 3rd wave is the largest of the three waves in the direction of the trend. Wave 1 of Subminuscule degree was 52 points long, and wave 3 of the same degree so far has covered only 42 points, making it shorter than wave 1. So the likelihood, I think, is that wave 3 still has more ground to cover.

However, Elliott wave theory says only that wave 3 can’t be the shortest wave in the direction of the trend. There’s no requirement that it be the longest. So my alternative analysis recognizes the possibility that wave 3 ended on August 6, with wave 3 being shorter than wave 1. If the alternative proves to be the case, then wave 5 can be no more than 42 points long, and could be less.

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 9, 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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