Trader’s Notebook

4:15 p.m. New York time

At the close. The S&P 500 futures declined further in the final minutes of the trading session, reaching a low of 4521.25 as the closing bell sounded. The price moved lower that yesterday’s reversal point, 4535.50, refuting my principal analysis and validating the first alternative: The overnight rise is a low-level rise within the larger, ongoing downward correction. The present decline is the 5th wave within wave C{-10} within the wave 4{-9} downward correction. I’ve updated the chart.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures peaked, at 4603, nine minutes after the opening bell, and then declined, remaining above yesterday’s 4535.50 reversal point. The pattern is consistent with a 2nd wave downward correction within uptrending wave 5{-9}, which began at yesterday’s low. No change in the analysis. I’ve updated the chart below.

12:55 p.m. New York time

Earnings play entry. I’ve entered a short iron condor earnings play on UNP and have posted an analysis of the options trade.

12:30 p.m. New York time

Earnings play exit. I’ve exited my short iron condor earnings play on TFC for a 34.3% profit in five days (including a weekend) and have 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 further in overnight trading, to a low of 4535.50, and then reversed to the upside.

What does it mean? The low marks the completion of the downward correction that began on January 4 from 4808.25, and the beginning of an uptrend that will carry price above that level to new highs.

What are the alternative? Alternative #1: The overnight rise is a low-level rise within the larger, ongoing downward correction. Alternative #2: The decline from January 4 was the first leg of a new downtrend that eventually will carry the price back toward 4000 and perhaps still lower.

[S&P 500 E-mini futures at 4:15 p.m., 135-minute bars, with volume]

What does Elliott wave theory say? Under my principal analysis, wave 4{-9} ended last night at 4535.50, and the subsequent rise is wave 1{-10} within wave 5{-9}, which will move beyond 4808.25, the January 4 high that ended wave 3{-9}, and perhaps significantly beyond it, since there are no limits to how far 5th waves can travel. This scenario brings higher prices quite soon and is at odds with the conventional wisdom in the financial media, which is anything but bullish.

The first alternative analysis sees the overnight rise as a subwave of an ongoing wave 5{-11} within wave C{-10} within wave 4{-9}. Wave C will end when the 5th subwave is complete, but not yet. This scenario brings higher prices, but not quite as quickly as is the case with the principal analysis.

The second alternative analysis, which I’ve had on the alternatives list for awhile, sees the January 4 high as the end of wave 5{-9} and the beginning of a downtrend that will carry the price to the low 4000s and perhaps still lower. This scenario would feel something like a mini-crash and is most in line with what I’m reading these days in the financial media, which is quite bearish.

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 19, 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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