Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded in a narrow range during the session, remaining below the overnight high, 4173.25 on the futures. No change in the revised analysis posted at 11:45 a.m., below. I’ve updated the middle chart, showing the futures.

1:50 p.m. New York time

ZG earnings play entry. I’ve entered a short bull put vertical spread on ZG, using options that trade for the last time on September 16, and have posted an analysis of the trade.

11:45 a.m. New York time

S&P 500 re-analysis. As noted this morning, the S&P 500 broke a rule of Elliott wave analysis. I have re-analyzed the S&P 500 to better match the charts. I began at the beginning, the January 6 peak that has defined everything that has happened since.

[S&P 500 index at 11 a.m., daily bars]

The chart shows a clear five-wave decline, with the 5th wave ending on July 17. The 5th wave is the final wave in a trend, so June 17 was a low of great significance.

The uncertainty on any chart is the proper degree labeling: Where does a wave fit, in size, compared to what has come before it. So for this first chart, I used placeholder degree numbering: 1{n0} as a base, 2{n-1} as a degree below it, and so forth.

That gave me two touchstones for analyzing the chart: The January 6 high and the July 17 low. The pattern showed a downtrend followed by an upward correction.

The next task was to assign degrees to the turning points on the chart. For that, I turned to a more detailed view, the S&P 500 E-mini futures.

[S&P 500 E-mini futures at 3:30 p.m., 160-minute bars, with volume]

Any degree assignment is a hunch at best. In this case, the rise that began on June 17 would be consistent with a Zigzag, the kind of correction most often seen in second waves. It would also be consistent with an uptrend following the end of a downtrend. So the choices were upward wave 2, which would mean the June 17 low ended a 1st wave, or an uptrending 1st wave, which would mean the low ended a 5th wave.

The magnitude of things suggested to me that the rise was a second wave. All of the waves from degree {-7} and lower were 5th waves. Therefore, wave 1{-6} seemed to be the best choice for the wave ending on June 17, and wave 2{-6} for the subsequent upward correction.

Under the new principal analysis, the rise from June 17 is wave A{-7}, the first wave of upward correction wave 2{-6}. Wave A{-7} is presently in its initial wave of five in a Zig-zag pattern: Wave {-8}.

I’ve retained the old analysis below for comparison with the new analysis, above.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly higher today, to 4173.25.

What does it mean? That level is above the beginning on June 8 of the present downtrend, from 4164. That breaks a rule of Elliott wave analysis, and I’ll be re-analyzing the chart today.

What are the alternatives? The principal analysis having been thrown into disarray, there are no clear alternatives. They’ll remain unknown until the re-analysis is complete.

The chart. I’ve marked the rule violation and noted a likely re-analysis points, using red labels.

[S&P 500 E-mini futures at 9:35 a.m., 160-minute bars, with volume]

What does Elliott wave theory say? The rule discovered by R.N. Elliott states that a 4th wave cannot move above the start of the preceding 1st wave within the same trend. Wave 1{-12} began on June 8 from 4164. Wave 4{-1} reached a high in overnight trading of 4173.25.

When the map no longer matches the territory, it’s time to redraw the map.

That will take more time than remains before the time I normally post this analysis, at 9:35 New York time. I hope to have a re-analyzed chart by this afternoon’s update. Right now, my best guess is that the downtrend, wave 1{-6}, which began on January 4 from 4808.25, may have ended on June 17 at 36.39, and the rise since then has been an upward correction, wave 2{-6}.

Note that if my best guess is correct, the wave numbers degrees have changed but the pattern has not: The S&P 500 is still in upward correction within a downtrend. More later after the re-analysis.

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.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 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)
  • S&P 500 Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 2{-6} Submicro, 6/17/2022, 4808.25 (up)
  • A{-7} Minuscule, 6/17/2022, 4631 (up)
  • 1{-8} Subminuscule, 6/17/2022, 4509 (up)
  • 1{-9} Bitsy, 6/17/2022, 4202.25 (up)
  • 3{-10} Subbitsy, 7/14/2022, 4189 (up)
  • 1{-11} Deci, 7//2022, 4164 (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, August 4, 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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