Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 bounced during the day between two Fibonacci retracement levels: 50% and 38.2%. Wave A {-10} within the downtrending wave 4 {-9} correction continues. No change to the principal analysis. I’ve updated the upper, close-up chart.

10 a.m. New York time

Trades today. I’ve entered a long shares position on AYI, which publishes earnings before the opening bell tomorrow. The expected move is $4.58 in either direction, based on options pricing, and Zacks gives a 3.52% score to the likelihood of an upside earnings surprise, based on analyst revisions. The Zacks rank for AYI is Hold.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures overnight retraced half of the rise from December 20 and then bounced back slightly. The decline from the January 4 high, 4808.25, covered 140.25 points, carrying the price down to 4668

What does it mean? By my principal analysis the January 4 peak ended the middle leg of the rise that began December 3 from 4492, and a correction is now underway.

What’s the alternative? If the January 4 peak is considered to have ended the final leg of the rise that began on December 3, then the January 4 peak marked the end of a month-long rise and isn’t a correction but instead is the beginning of a new downtrend.

[S&P 500 E-mini futures at 3:30 p.m., 75-minute bars, with volume]

What does Elliott wave theory say? I’ve changed the labelling of the January 4 peak to the {-9th} degree rather than the {-10th}. That labelling best matches subsequent events.

Under my principal analysis, wave 4 {-9} is underway. It’s first wave internally is on wave 4 {-11} in what will end up as a five-wave pattern that will complete wave A {-10}, the first of three waves that will form the correction. The five waves within the wave A {-10} mean that the correction is most likely taking the form of a Zigzag, whose wave structure is 5-3-5, as compared to a Flat, which is 3-3-5. The preceding wave 2 {-9} also took the form of a Zigzag. Normally, waves 2 and 5 alternate in their form, but not always. So perhaps this will work out to be one of exceptions.

Wave 4 {-9} will be followed by a 5th wave that will carry the price to new heights.

Under my alternative analysis, the January 4 peak ended wave 5 {-9}, and the soon-to-be-five waves of the subsequent decline are the 1st wave of a new downtrend. The count of the rise from December 20 is a bit muddy. I think the alternative analysis is unlikely, but it’s possible. The alternative will be confirmed if the price moves below the December 20 low, 4520.25.

I’ve a seen a couple of OMG! scare headlines this morning. To put the decline in perspective, here’s a chart showing the entirety of the expanding Diagonal Triangle, the form the market has taken since December 2018. The small tan circle at the right side of the price line, pointed to by a large red arrow, is the decline since January 4. In the larger scheme of things, not yet a big deal, although it could develop into a significant move.

[S&P 500 index at 9:30 a.m., 2-day bars]

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 6, 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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