Trader’s Notebook

Changes, beginning today: A new title for this daily post, reflecting the broader range of material it covers. And in the Elliott wave analysis section, no more degree names. I’ll rely solely on the wave number and subscript in curly brackets. For details, click here.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its low-level downward correction within a series of ever larger uptrending movements. Wave 4 {-10} within wave 3 {-9} within wave 5 {-8} continues. No change in the analysis. I’ve updated the chart.

10:25 a.m. New York time

Options earnings play exited. My short iron condor options position on NKE, an earnings play, turned profitable after 14 days, and exited for a 20.5% gain. I’ve updated the analysis with results.

9:45 a.m. New York time

Trades today. No earnings plays on the books for today. JEF was a possibility for options, but the time and even the date were uncertain, so I’m passing. I plan no earnings plays using shares. Non-earnings trades: I’ll be opening a position on LPX. It was just promoted to “strong buy” by Zacks, based on analyst opinions. It’s considered to be a value play, as upward momentum and is in an industry that ranks in the top 8% of industries when it comes to analyst “buy” opinions.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise when trading resumed Sunday evening and the price remains slightly below the December 30 peak of 4799.25.

What does it mean? By my principal count, the rise that began December 20 from 4520.25 is still underway and will push beyond the peak to new heights.

What’s the alternative? The December 30 peak can be seen as the end of the rise from December 20, ushering in a correction to the downside.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour bars, with volume]

What does Elliott wave theory say? My principal analysis sees the December 20 peak as a subwave of wave 3 {-9} within wave 5 {-8}, which began December 3 from 4492.

The rules discovered by R.N. Elliott require that the 3rd wave in a trend not be shorter than both the 1st and 5th waves. And usually, wave 3 is longer than wave 1. And such is the case with wave 3 {-9}, which is 279.50 points long from the starting point to the December 20 peak. wave 1 {-9} is 251.25 points long, beginning to end.

So why not mark the December 30 peak as the end of wave 3 {-9} and be done with it? That’s the alternative analysis, and my reasoning for rejecting it as the principal goes like this: The sideways movement in the days leading up to the peak look very much like a 4th wave, in this case one degree lower: wave 4 {-10} within wave 3 {-9}. The peak isn’t very far above the sideways trend and certainly an be seen as part of a correction. The pattern-recognition software between my ears tells me that such a short rise is a sorry excuse for a 5th wave, and so the better count is that wave 4 {-10} possibly ended with the decline off of the December 30 peak, and the subsequent rise is the first small step of wave 5 {-10}.

When 5 {-10} reaches completion, it will also mark the end of its parent, wave 3 {-9}, which will be followed by a 4th wave correction, wave 4 {-9} within uptrending wave 5 {-8}.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it this way 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, January 3, 2022


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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