Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 completed the first leg of the upward correction that began on April 17, peaking today at 4484.25 on the futures and then reversing. Downward wave B{-10} within upward wave 4{-9} is now underway. No change in the analysis. I’ve updated the chart.

2:10 p.m. New York time

UAL earnings play entry. I’ve entered a short bear call options spread on UAL and have posted a trade analysis.

2 p.m. New York time

DOW earnings play entry. I’ve entered a short bull put options spread on DOW and have posted a trade analysis.

1:25 p.m. New York time

PG earnings play partial exit. I exited the short calls in my bear call options spread on PG when the price rose after earnings were published. PG goes ex-dividend on Thursday, April 21, putting the short calls as risk of assignment. I’ve updated the trade analysis with results for the short calls and shall update it again after exiting the long calls.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued higher in overnight trading and is presently in the 5th leg of the rise.

What does it mean? The upward correction that began on April 17 is still underway. The 5th leg, when complete, will mark the end of the first part of what will likely be a three-part corrective pattern. The analysis of the size of the correction compared to other movements has changed from yesterday’s analysis.

What’s the alternative? None at present.

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

What does Elliott wave theory say? I’ve moved the degree of the correction two degrees larger. Under my present analysis, the price is in wave A{-10}, the first wave within wave 4{-9}, an upward correction, within downtrending wave 1{-8}, which is the first wave of a downtrend that began on March 29 from 4631.

All of this is happening within a far larger downtrend, several degrees higher, wave 1{-6}, which began on January 4 from 4808.25. Basically, the upward correction is no big deal, just a tiny turn upward in an overwhelmingly downward trend. My trading tends to be short-term, so I look at the details, such as wave A{-10}. If you’re time horizon is longer — if you’re surfing the Elliott waves of high degree — then your focus will be on the wave 1{-6} decline from early January and its parent waves, all the way up to wave 4{-1}, which began on January 4 from the low 4800s.

Wave 4{-9} is most likely taking the form of a Zigzag, which has five waves within its A wave, three within B and five within C — 5-3-5 for short. The other common corrective pattern is the Flat: 3-3-5. So the present A-wave rise will be followed by a B-wave decline, which often will take back 38% to 79% of the preceding A wave, and then a C wave that will reach new heights.

Under yesterday’s analysis, wave 1{-11} began at 4455.75 and wave 2{-11}, at 4355.50. A firm rule of Elliott wave analysis is that a 2nd wave can’t move beyond the start of the preceding 1st wave. When the price did just that, rising to 4480.50 in overnight trading, it signaled that the degree labeling didn’t match the reality the chart and required re-analysis.

Today’s new count is yesterday’s alternative analysis. Often with a price movement, it’s difficult to accurately place a wave within the right degree. I often use the word “fractal” to describe the basic nature of the market’s patterns. What that means is that each wave is part of a larger wave, which in turn is part of a still larger wave, and all the way up to great waves that take a century or more to complete, and each wave composed of subwaves, which in turn have subwaves, all the way down to the tick, a single movment in the price caused by a single trade. So within this structure, what I called wave A{-12} within wave 2{-11} in yesterday’s analysis turned out to be wave A{-10} within wave 4{-9}.

Unlike a 2nd wave, a 4th wave can move above the start of the preceding 1st wave, which in the case of the revised analysis, is the start of wave 1{-9} on April 1 from 4519.

An interesting conundrum, one of many reasons why I consider Elliott wave analysis to be an art, not a science.

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, 3/29/2022, 4631 (down)
  • 1{-8} Subminuscule, 3/29/2022, 4631 (down)
  • 4{-9} Bitsy, 4/17/2022, 4555.50, (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, April 20, 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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