Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 began to fall during the trading session, about 10 minutes after Federal Reserve Chair Powell began his news conference. The Fed’s Federal Open Markets Committee today declined to raise interest rates in response to higher inflation.

The futures fell from the 38.2% Fibonacci retracement level, where they had lingered during the early hours of the session, to below 23.6% Fibonacci retracement level. As a best guess, the peak at the 38.2% retracement looks like the end of wave A{-11} and the subsequent decline as wave B{-11}, all within the upward correction, wave 4{-9}.

It is a rule of Elliott wave analysis that a B wave cannot move beyond the start of the preceding wave A, which sets a lower boundary of 4212.75 or above.s

No change in the analysis. I’ve updated the chart.

2:45 p.m. New York time

LVS earnings play entry. I’ve entered a long bull put options spread on LVS, timed to coincide with the company’s earnings announcement after the closing bell. I’ve posted an analysis of the trade.

11:55 a.m. New York time

BA earnings play exit. I’ve exited my short bear call options spread on BA, one day after entry, for a 33.5% profit. I’ve updated the analysis with details of the exit.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures barely moved in overnight trading, remaining at a 38.2% retracement of the preceding 12-day decline.

What does it mean? The upward correction that began on January 24 is still underway. It is happening within the early states of a larger downtrend that began on January 4 and will last for months and probably years.

What’s the alternative? The decline from January 4 is a downward correction within a larger uptrend that began on February 23, 2020, at the end of the market crash early in the pandemic.

[S&P 500 E-mini futures at 3:30 p.m., 85-minute bars, with volume]

What does Elliott wave theory say? Under my principal analysis, January 24 marked the end of wave 3{-10} within a series of 1st waves of increasingly larger degree. It is a new downtrend that eventually will reach below 2000.

The preceding uptrend ended on January 4 at 4808.25. Wave 3{-10} has been followed present upward correction, wave 4{-10}. Internally, it looks as though wave C{-11} is now underway, although this early in the correction it’s hard to accurately judge the degrees of internal waves. This is all happening within downtrending wave 1{-9 } within downtrending wave 1{-8}, which both began on January 4.

Under the rules of Elliott wave analysis, a 4th wave must remain below the end of the preceding 1st wave. In this case, wave 1{-10} ended on January 10 at 4572.75 and wave 4{-10} cannot move above that price.

Under my secondary analysis, the January 4 peak was a stopping point within a still ongoing wave 5{-8} and larger uptrending waves. The subsequent decline at lower degrees, which the S&P 500 is still in today, is a correction that in fact may have ended on January 24. Under this scenario, the subsequent rise — small so far — is the early portion of a resumption of the uptrend and will exceed 4808.25.

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 26, 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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