Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures spent the day, as it spent the night, in the space between the 50% and 38.2% retracement lines. The longer it puts off the rise expected under the principal analysis, discussed this morning, the more likely the first alternative seems to be. Under that scenario, the wave 4{-7} correction will take a compound form, consisting of several corrective patterns. Nonetheless, so far I’m keeping the principal analysis in place: Wave 5{-9} within uptrending wave C{-8} is still underway. I’ve updated the chart.

10 a.m. New York time

LYFT earnings play entry. I’ve entered a short bear call options spread on LYFT timed to coincide with the company’s earnings announcement after the closing bell today. 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 traded narrowly overnight between the 38.2% and 50% retracement levels.

What does it mean? The upward correction that began on January 24 is playing its end game. A final push to the upside will conclude the correction. The price will remain below the January 4 peak, 4808.25. After the correction ends, the downtrend will resume and the price fall below the January 24 low, 4212.75, perhaps significantly lower.

What are the alternatives? There a two.

Alternative #1: The correction won’t end with the last leg of the present corrective pattern but instead will trace an intervening decline and then form a compound correction, adding on a second corrective pattern. The price will remain above 4212.75.

Alternative #2: The correction ended on February 2 at 4586, the downtrend and resumed and is in its early stages. The price will fall below 4212.75.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What does Elliott wave theory say? Principal analysis: The upward correction is wave 2{-7} and within it, wave C{-8} — the final wave of the corrective pattern, is nearing an end. It’s final internal component, wave 5{-9}, began on February 4. Wave 2{-7} will be followed by a resumption of the downtrend, wave 3{-7}, which will fall below 4212.75, which is the January 24 end point of wave 1{-7}.

Alternative #1: The present wave C{-8} won’t be the end of its parent, wave 2{-7}, but will instead be followed by wave X{-8} and then another three-wave corrective pattern. Such compound correction can contain up to three corrective components.

Alternative #2: The February 2 high marked the end of wave 5{-9} with wave C{-8}, rather than ending wave 3{-9}, as the principal analysis has it. Wave 5{-9} marks the end of wave C{-8} and also of the parent, wave 2{-7}.

We Are Here.

These are the waves currently in progress under my 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)

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 8, 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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