Trader’s Notebook

4:15 p.m. New York time

Earnings play exit. During the session I exited my short iron condor position on DAL, for a 24% return over eight days. I’ve updated the trade analysis with details of the exit.

3:50 p.m. New York time

Earnings play exit. I’ve exited my short iron condor position on WFC after seven days, for a 17.4% return. I’ve updated the trade analysis with full details.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reversed and moved a few points below the overnight now, to 4510.25 so far. This morning’s first alternative analysis is correct. Wave C{-10} within wave 4{-9} is still underway. I’ve updated the chart.

10:35 a.m. New York time

Earnings play entry. I’ve entered a short iron condor options position on NFLX, timed to coincide with the company’s earnings announcement after the closing bell. I’ve posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined overnight to 4514.50, below the December 20 low of 4520.25 and then rose by 50 points before the opening bell.

What does it mean? The last leg of the downward correction that began on January 4 from 4808.25 has met all requirements for completion. The overnight low could be the end of the correction …

What’s the alternative? … or, as the first alternative, the price could reverse and it could decline further. As I did yesterday, I’ve marked the chart to comply with the principal analysis. But I think this first alternative is equally likely.

As a second alternative, the pattern of the decline from the high of January 4 is also consistent with the beginning of a new downtrend. This would require adjusting the wave number for January 4. The ambiguities in the lead-up to that high make it possible this alternative will play out.

A decline below 4492 — the low of December 3 — would confirm this second alternative. A rise above 4808.25 — the high of January 4 — would confirm the principal analysis.

[S&P 500 E-mini futures at 3:30 p.m., 135-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, wave C{-10} within wave 4{-9} ended overnight, and wave 5{-9} began its ascent to new highs.

Under the first alternative, wave C{-10} has a few more very low level internal waves to complete before it is done. I count the final downward movement that ended last night as wave 5{-12} within wave 5{-11} within wave C{-10}.

Both the principal analysis and the first alternative are taking place within wave 5{-8}, which began on December 3 from 4492, and the January 4 peak was the end of wave 3{-9} within wave 3{-8}.

Under the second alternative, the January 4 peak marked the end of wave 5{-8}, and the decline since then, internally movements of 5, 3 and 5 waves, marks waves 1, 2 and 3 — all of the {-10} degree — within downtrending wave 1{-9}.

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 20, 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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