Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined during the session to the 38.25 retracement level and then reversed, again reaching above the 50% retracement as the session approached its end. No change to this morning’s somewhat tentative analysis. I’ve updated the upper chart.

2 p.m. New York time

PRU earnings play exit. I’ve exited my bull put spread on PRU for a 32.5% profit one day after entry 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 continued to decline in overnight trading, reaching the 38.2% Fibonacci retracement level.

What does it mean? I’m sticking with yesterday’s principal analysis, but with declining confidence: The upward correction that began on January 24 from 4212.75 continues. It is in its last leg, and when it is complete, the downtrend that began on January 4 from 4808.25 will resume.

What’s the alternative? The greater the decline from the February 2 high, 4586, the greater the likelihood that upward correction is over, having ended at that peak. Under this scenario, the downtrend resumed two days ago and will quickly pick up momentum as it declines below 4212.75.

Charts. The upper chart offers a close-up view of the S&P 500 futures, tracking the decline that began January 4. The lower chart offers a longer-term view of the S&P 500 index, tracking the early pandemic crash and the subsequent rise. The red lines on the lower chart are the boundaries of an expanding Diagonal Triangle that began in December 2018.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]
[S&P 500 index at 9:33 a.m., daily bars]

What does Elliott wave theory say? Under my increasingly less probable principal analysis, wave 2{-7} continues its rise. Internally, I find that the best count is that wave 3{-9} within wave C{-8} ended on February 2 at 4586, and declining wave 4{-9} within C{-8} is underway.

Under my increasingly more probable alternative analysis, wave 2{-7} ended on February 2 and wave 3{-7} has begun its downward journey. Third waves are powerful, generally the longest of the three waves in the direction of a trend, and wave 3{-7} is likely to carry the price below the ending price — 4212.75 — of the preceding wave 1{-7}.

So what will it take to resolve the difficult choice between the two scenarios? The principal analysis will be proven if the price reverses and moves above 4586, the end of wave 3{-9}. The alternative analysis will be proven if the price moves below 4212.75, the endpoint of wave 1{-7}.

We Are Here.

These are the waves currently in progress under the principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

  • 5{0} Intermediate, 12/21/2018, 2316.75 (up)
  • 3{-1} Minor, 3/23/2018 2174 (up)
  • 5{-2} Minute, 10/4/2020, 4267.50 (up)
  • 4{-3} Minuette, 1/4/2022, 4808.25 (down)
  • A{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 1{-6} Submicro, 1/4/2022, 4808.25 (down)
  • 2{-7} Minuscule, 1/24/2022, 4212.75 (up)
  • C{-8} Subminuscule, 1/26/2022, 4263.75 (up)

Under the alternative analysis, the last two lines would be changed to:

3{-7} Minuscule, 2/2/2022, 4586 (down)
1{-8} Subminuscule, 2/2/2022, 4586 (down)

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, February 4, 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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