Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 fell during the session, reaching a low on the futures of 4444.50 in afternoon trading. From that point the price rose by a bit more than 50 points.

The downtrend that began on April 5, wave 3{-8} continues. No change in the analysis. I’ve updated the chart.

10:10 a.m. New York time

LW earnings play entry. I’ve entered a bear call vertical spread on LW, using the options that expire May 20, and have posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell in overnight trading, reaching below 4501.25, the starting point of the upward correction that began on April 1 into the 4470s.

What does it mean? The correction ended at 4588.75, the April 5 high, and the downtrend that began on March 29 from 4631 has resumed.

What’s the alternative? I have none at this point. In falling below 4501.25, the chart pattern gave a clear signal that the downtrend has resumed. More about that in the Elliott wave theory section below.

[S&P 500 E-mini futures at 3:30 p.m., 150-minute bars, with volume]

What does Elliott wave theory say? The correction that ended on April 5 at 4588.75 was wave 2{-8}. Yesterday’s analysis considered that peak to be the end of wave A{-9} within wave 2{-8} and the decline that followed to be wave B{-9}. However, when the price fell below the starting point of the preceding 1st wave — 4501.25 — it had done something that no 2nd wave can do under the rules discovered by R.N. Elliott. When a wave breaks a rule in Elliott wave analysis, it doesn’t mean the wave is a rule-breaker. It means the analysis no longer matches the reality on the chart. And such is the case here. The fall below the start of wave 1{-8} can only mean that wave 2{-8} ended on April 5, and the decline that followed is wave 3{-8}.

Third waves are powerhouses. They’re generally the longest and most energetic wave of the five-wave set that makes up a trend. Wave 1{-8} was 129.75 points long. It wouldn’t be surprising if wave 3{-8} were double that in length, at a minimum. If it does turn to be twice as long, the the price will reach down into the low 4300s, and I wouldn’t be shocked if it dropped further. However, the only rule that governs the length of 3rd waves is that they can’t be the shorter than both waves 1 and 5 in the same set. It’s certainly possible that a 3rd wave can be shorter than the preceding 1st wave, and the 5th wave that follows is shorter than the 3rd.

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)
  • 1{-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)
  • 5{-7} Minuscule, 3/31/2022, 4631 (down)
  • 3{-8} Subminuscule, 4/5/2022, 4588.75 (down)

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, April 6, 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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