Trader’s Notebook

Note: Over the weekend, I posted a discussion of changes that I’m making in my earnings play strategy.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to decline during the session, with each tick lower adding credibility to the scenario that says the decline that began on April 21 has resumed as a 3rd wave. Whether it’s wave 3{-9}, as I have it in my principal analysis, or something smaller, wave 3{-10} or even wave 3{-11}, is still up in the air. In any case, internally it is in its 5th wave — wave 5{-10} as I’ve marked the chart, but it could turn out to be wave 5{-11} or even something smaller. I’ve the updated the chart.

2:45 p.m. New York time

MOS earnings play entry. I’ve entered a bull put vertical spread on MOS and have posted an analysis of the trade.

2:35 p.m. New York time

MGM earnings play entry. I’ve entered a bull put vertical spread on MGM 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 continued to fall after trading resumed overnight, in a pattern that places the end of the upward correction at the April 28 peak.

What does it mean? Under my principal analysis, the downtrend that began on April 21 has resumed.

What’s the alternative? The ambiguity lies in the placement of the present decline in relation to the April 21 downtrend. I discuss the question in the Elliott wave theory section, below.

[S&P 500 E-mini futures at 3:30 p.m., 75-minute bars, with volume]

What does Elliott wave theory say? Under my principal analysis, the upward correction, wave 2{-9} within wave 5{-8}, ended on April 28 at 4305.50, close to the 38.2% Fibonacci retracement level. It seems a bit short for the full correction. Nonetheless, it would break no rules, and it’s possible to see three waves internally within the rise that ended on April 28.

I had labled the decline from April 28 as wave B{-10} within wave 2{-9}. But the decline has five waves internally, and a B wave must have three waves.

I labeled the decline from April 28 as wave 1{-10} within wave 3{-9}. To make it one degree higher, it seemed to me, would make the wave disproportionate to the preceding wave 1{-9}. Generally, 3rd waves are longer than both waves 1 and 5 in a set, and it’s a firm rule that wave 3 can’t be shorter than both. So as an alternative analysis, it may be that the developing chart will require wave 1{-10} to be relabeled as wave 3{-9}, or perhaps pushed down a level to wave 1{-11}.

All of this is happening within wave 5{-7}, which began on March 29 from 4631, and wave 1{-6}, which began on January 4 from 4808.25. The two horizontal lines on the chart are the price channel for wave 1{-6}. Wave formations have a tendency to stay more or less within their price channels, but it’s not a certainty. Sometimes the price breaks free of such restraints.

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)
  • 5{-8} Subminuscule, 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, May 2, 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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Based on a work at www.timbovee.com.