Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has declined throughout the day, reaching a low on the futures so far, 4274.50. No change in the revised analysis. Downtrending wave 5{-9} continues. I’ve updated the upper chart.

1:40 p.m. New York time

PG earnings play final exit. I exited the short calls in my bear call options spread on PG two days ago and exited the long calls today, completing my exit from the position. Overall, it was a small loss. I’ve updated the trade analysis with results from the long calls exit and the exit from the full spread.

11:40 a.m. New York time

Revised analysis of the S&P 500. The S&P 500 has dropped below 4355.50 on the futures, requiring a reanalysis of the upward correction that began on April 17 and the decline that began on April 21.

Under the new analysis, the upward correction ended on April 21, and the downtrend that began on March 29 resumed and can be expected to carry the price lower by a significant amount.

[REVISED ANALYSIS: S&P 500 E-Mini futures at 3:30 p.m., 55-minute bars, with volume]

In Elliott wave terms: Rising wave 4{-9} ended on April 21 at 4509 and wave 5{-9} began its decline. All of this is happening within wave 1{-8}, which began on March 29 from 4631.

This morning’s analysis analyzed the decline as wave B{-10} within an ongoing wave 4{-9} correction. However, when the price dropped below 4355.50, the end of wave 3{-9}, it became clear that wave 4{-9} was no longer underway. It is a firm rule of Elliott wave analysis that a 4th wave cannot move beyond the end of the preceding 3rd wave. The chart broke that rule, so the decline couldn’t be part of wave 4{-9}.

Under my revised analysis, wave 4{-9} ended on April 21 at 4509 after completing three waves internally. Wave A{-10} had three waves within it; B{-10} three waves; and C{-10} five waves, the definition of a Flat correction.

There is no limit to how far wave 5{-9} can decline, beyond the limits of proportionality with other waves of that same degree. The preceding wave 3{-9} was 233.25 points long on the futures. If wave 5{-9} were to turn out to be the same length, it would carry the price down to the high 4200s. Wave 3{-9} is not the shortest in the set, even if wave 5{-9} is longer, so it could fall further, or it could come up short.

10 a.m. New York time

KO earnings play entry. I’ve entered a short bull put options spread on KO 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 rose slightly in overnight trading after falling 147 points in 11 hours, to 4362 and then rose slightly.

What does it mean? The rapid fall was the middle section of a three-part upward corrective structure that began on April 17 from 4355.50. The bounce is the beginning of the third part of the structure, which can be expected to rise back into the low 4500s.

What’s the alternative? It’s possible that the decline isn’t yet complete. If that’s the case, then the price will fall a little further before returning to the low 4500s.

[FORMER ANALYSIS: S&P 500 E-mini futures at 9:35 a.m., 55-minute bars, with volume]

What does Elliott wave theory say? Thursday’s dramatic fall was wave B{-10} within wave 4{-9}, an upward correction that began on April 17. The correction is taking the form of a Zigzag — five waves within wave A{-10}, three within B{-10} and five within the future C{-10}. The velocity of wave B{-10} was so high that the internals aren’t visible on even a 30-minute chart. However, a 2-minute chart clearly shows five waves.

Under the principal analysis, wave B{-10} is complete and wave C{-10} has begun its rise back toward where wave A{-10} ended and B{-10} began. Typically, the C wave will move beyond the end of the preceding A wave — 4509. However, a firm rule in Elliott prohibits it from moving beyond the end of the preceding 1st wave, which is 4519 in this case. So if C{-10} pushes to a new high within the correction, it will remain below 4519.

Under the alternative analysis, wave B{-10} hasn’t yet completed its decline. However, it can’t fall much further. Under the rules of Elliott wave analysis, a B wave can’t move below the start of wave A, 4355.50 in this case.

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)
  • 5{-9} Bitsy, 4/21/2022, 4509, (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 22, 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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