Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded lower during the session, reaching 4103.75 on the futures, nearly 70 points below yesterday’s high. Wave 4{-11}, a downward correction continues within uptrending wave 3{-10}, which began on July 14. No change in the analysis. I’ve updated the upper chart.

10:25 a.m. New York time

ZG earnings play exit. ZG failed to meet earnings expectations by a large margin, and I’ve exited my short bull put options spread for 40.2% of maximum potential loss. I’ve updated the trade analysis with full results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, leaving yesterday’s high, 4173.25, unchallenged.

What does it mean? The rise from July has met all of the requirements for the final leg within a five-step trend. At this point the price has fishing for a peak. If yesterday’s high was the peak, then the middle leg of the larger rise from July 18 is complete and after a correction, the final leg of that rise will reach for a higher peak.

What is the alternative? The middle leg of the rise from July 18 is not yet over and the overnight decline is a smaller correction within that rise.

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

What does Elliott wave theory say? The fractal nature of market movements is well illustrated within this chart: Waves within waves within waves, each forming the same patterns adhering to the same rules.

Under my principal analysis, the five-wave trend that began on July 18 has completed its middle wave, 3{-12} and begun a downward correction, wave 4{-12}. This is happening with the parent, wave 3{-11} within wave 3{-10} within wave 1{-9}, which began on June 17 from 3639. It is the smallest of a series of increasingly larger rising 1st waves that began on that date.

Under the alternative analysis, wave 3{-12} has not yet completed its rise and will soon move above the prior high, 4173.25.

[S&P 500 index at 9:33 a.m., 3-day bars]

The bigger picture. The S&P 500 index has been forming an expanding Diagonal Triangle since December 26, 2018, from a low that date of 2346.58. The 2nd wave of the triangle — wave 2{-1} — ended on February 23, 2020, the low of the early pandemic crash. The rise that followed is wave 3{-1}. It ended last January 4. The decline that followed is wave 4{-1}. In an expanding Diagonal Triangle, the price tends to retrace 66% to 81% of the preceding 3rd wave, giving a target range between 3085 to 2691. That’s a tendency, not a rule, and the price could well fall even lower, perhaps as low as the triangle’s lower boundary, presently just above 1900.

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)
  • 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)
  • 5{-9} Bitsy, 5/30/2022, 4202.25 (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, August 5, 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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