Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 reached a low at mid-session, of 4255 on the futures, and then rose back to 4305.25, before once again taking a sharp decline, into the 4270s. The day’s decline had five wave internally, making it consistent with both a trending wave and the initial, A, wave within a Zigzag correction.

I’ve added a very short-term chart of the futures showing the decline from yesterday’s peak in detail, but without the degree subscripts. I’ve also updated the longer-term chart from this morning.

The decline could confirm the alternative analysis, that the 8/17 peak end the uptrend from August 9, as the alternative analysis has it, or it could be a correction within the uptrend, which is still underway, as the principal analysis has it. It’s ambiguous.

Meanwhile, for the moment, I’m sticking with my principal analysis.

[S&P 500 E-mini futures at 3:33 p.m., 5-minute bars]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply from yesterday’s high, 4327.50, reaching into the 4260s. The decline was sharp, beginning at 1:35 a.m. New York time before the London markets opened and continuing until they closed, at 7:30 a.m.

What does it mean? The principal analysis is the same as it was yesterday: The uptrend that began on August 9 continues and the decline is a downward correction within that uptrend. The sharpness of the decline increases the likelihood of the alternative analysis being correct.

What are the alternatives? The alternative is unchanged: Yesterday’s high could well have been the end of the uptrend and the beginning of a downward correction a couple of degrees larger. The greater the price decline, the more likely it is that 4327.50 was the end of the uptrend that began on August 9.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What does Elliott wave theory say? Elliott wave theory holds that the markets reflect the public mood and often lead events that alter that mood. The Federal Open Market Committee within the Federal Reserve releases minutes of its late July meeting at 2 p.m. today. That’s no surprise. It has been on the calendar for quite a long time. And personally, I doubt that there will be any surprises. Some market journalists have suggested that the market is worried because the minutes might reveal that FOMC discussed a Fed Funds rate increase higher than the 75 basis point hike they actually did.

It seems like an unlikely scenario to me. The FOMC’s next two-day meeting ends on September 21, and a lot can happen between now and then. It seems to me to be a poor theory of causality. Perhaps better to count the waves and see what they imply

Under my principal analysis, wave 5{-13} is continuing its rise. When it is complete, it will also mark the end of two larger waves, 5{-12} and 3{-11}. The next move will be a downtrend, wave 4{-11}, which will retrace a portion of wave 3{-11}, the uptrend that began on July 18 from 3920.25.

This is all happening within a series of larger waves, rising and falling, within a major downtrend that began on January 4 from from 4808.25, wave 4{-1}, which will likely carry the price below 3,000, perhaps significantly so.

That major decline will be followed by a rise to new highs, wave 5{-1}, which will complete wave 5{0}, an expanding Diagonal Triangle that began on December 26, 2018 from 2346.58 on the index.

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 17, 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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