Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 peaked early in the session, at 4539 on the futures, 4546.03 on the index and then dropped sharply within the next 45 minutes, on average shaving off a point each minute. It’s very low level so far, but the sharp decline feels like the opening move of a reversal.

However, given the small degree, that’s not yet enough to support changing the analysis, although it does give added credibility to the first alternative analysis from this morning.

So, either the upward correction, wave 4{-7}, is still underway, or the downtrend resumed, as wave 5{-8} began from 4539 on the futures. There is no way to choose between those two alternatives, at this point. The further the drop, the more likely it is wave wave 5{-7} has begun. A technical problem that kept me from updating the chart has been resolved, and the chart has been updated.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise overnight, reaching a high of 4531.75, which beats the March 22 high by nearly 20 points.

What does it mean? The analysis and the alternatives are a replay of yesterday’s. The upward correction that began on February 24 continues.

What’s the alternative? There are two:

Alternative #1: The overnight high, 4531.75, is the end of the upward correction, and the downtrend that began on January 4 from 4808.25 has resumed and likely will fall below the starting point of the correction, 4101.75.

Alternative #2: The correction is forming a compound structure containing two or three corrective patterns. When the first pattern, now underway, reaches its end, then the price will decline in a connecting movement that will be followed by a second corrective pattern. The connecting movement will end above the starting point of the correction, 4101.75.

Alternative #1 — the correction has ended — has the same likelihood as the principal analysis. Alternative #2 — a compound correction — while not uncommon, is less common than the principal analysis or the first alternative.

Charts. The upper chart is a closer-in view showing the January 4 peak and the subsequent decline of the S&P 500 futures. The lower chart is a longer view showing the price structure since December 2018 of the S&P 500 index. That structure is an expanding Diagonal Triangle, and I’ll discuss it in the Elliott wave analysis section below.

[S&P 500 E-mini futures at 3:30 p.m., 3-hour bars, with volume]
[S&P 500 index at 9:32 a.m., 2-day bars]

What does Elliott wave theory say? The upward correction, wave 4{-7}, has fulfilled all of the requirements of Elliott wave analysis. It has traced three subwaves — A, B and C at the {-8} degree — and wave C{-8} internally has five waves. The question now is whether wave 5{-9} within wave C{-8} within wave 4{-7} is yet complete.

When wave 4{-7} reaches its end, it will be followed by wave 5{-7}, which will most likely carry the price below the end of wave 3{-7} and the start of wave 4{-7} — 4101.75 — and perhaps significantly below that level. I’m hedging with “most likely” because sometimes 5th waves fail to move beyond the end of the preceding wave 3{-7}. Almost always, however, they do move beyond that end point.

This is all happening within wave 1{-6}, the first wave of a large downtrend that began on January 4.

As shown in the lower chart, wave {-6} is the smallest of five 1st waves, each of increasing degree, that began on the 4th of January. Their parent is wave 4{-1}, the next-to-the-last wave within wave 5{0}, the final wave in an expanding Diagonal Triangle that began on December 26, 2018 from 2346.58.

The price-channel boundaries of the Triangle grow further apart each day — that’s the “expanding” part” — and wave 4{-1} will eventually approach the lower boundary and perhaps overshoot it by a little. The lower boundary is presently in the low 1900s, and it will be noticeably lower by the time wave 4{-1} reaches that level.

Wave 4{-1} will be followed by rising wave 5{-1}, which again will eventually carry the price to the region upper boundary, perhaps overshooting it by a little, or perhaps falling short. The upper boundary at present is approaching 5100, and it will be noticeably higher by the time the price completes its journey from the lower boundary.

Wave 5{-1}, when complete, will be the end of the Triangle, wave 5{0}. It will be followed by a downward correction that will be built from subwaves lasting for years, with the usual ups and downs that form the consistent patterns of the market.

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.

  • Index:
  • 5{0} Intermediate, 12/26/2018, 2346.58 (up)
  • 4{-1} Minor, 1/4/2022 4818.62 (down)
  • A{-2} Minute, 1/4/2022 4818.62 (down)
  • Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • Futures:
  • 1{-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, 3/3/2022, 4101.75 (up)
  • C{-8} Subminuscule, 3/15/2022, 4129.50 (up}

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it 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 25, 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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