Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued their decline during the day, reaching below the 38.2% retracement level. That’s a deep enough decline for me to switch the chart to showing the February 28 peak as the end of wave A{-8}, the first wave within the upward correction that began on February 24, wave 4{-7}. The downtrend that followed that peak is wave B{-8}, and it will be followed by wave C{-8} to the upside, which most likely will complete the wave 4{-7} correction. It’s possible that the correction will take a compound form, which links two or three corrective patterns together, and that would stretch the correction out for a longer time. After the correction is over, the downtrend will resume as wave 5{-7} to the downside, which will move below the February 24 low of 4101.75.

10:30 a.m. New York time

KR earnings play exit. I’ve exited my short bull put vertical spread on KR, an earnings play, for 25% of maximum potential profit 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 reached a high of 4399 in overnight trading, just below the 61.8% Fibonacci retracement level, and then retreated slightly.

What does it mean? Under my principal analysis, the first wave of the upward correction that began February 24 is still underway. The analysis will be proven if the price rises above 4399 and then, when the first wave is complete, declines in a second wave with three waves internally.

What’s the alternative? The high of February 28 marks the end of the entire correction and subsequent decline is a resumption of the downtrend that began on January 4. If the price declines in five waves, it adds credence to this scenario, and the lower the price goes, the more likely it becomes. A decline below the February 24 low, 4101.75, would be an unquestionable confirmation.

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

What does Elliott wave theory say? Under the principal analysis wave A{-8} within wave 4{-7} is still underway, although it may have ended at 4399, the overnight high. Under the alternative analysis, the overnight high marked the end of wave C{-8} within wave 4{-7}, and the downtrend has resumed with wave 5{-7}, which will carry the price below 4101.75, the endpoint of wave 3{-7}. and perhaps significantly below that level.

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)
  • 4{-7} Minuscule, 2/24/2022, 4101.75 (up)
  • A{-8} Subminuscule, 2/24/2022, 4101.75 (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, March 1, 2022

Disclaimer

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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