Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reached 4019.25 during the session and then sharply reversed, so far reaching back into the 3920s. The sharpness of the reversal suggests to me that the peak was the end of the upward correction discussed this morning, wave 4{-10}, and that wave 5{-10}, a resumption of the downtrend, is now underway. A move below 3903.50, the start of the correction, would strengthen that interpretation. A reversal and a move above 4019.25 would strengthen an alternative scenario, that today’s peak was the end of the first wave within the correction, wave A{-11}. I’ve updated the chart.

9:35 a.m. New York time

Monday, a market holiday. U.S. markets will be closed on Monday for the Labor Day holiday. The S&P 500 E-mini futures are traded internationally, and often there will be price updates during a holiday period. If there are any significant price changes on Monday, I’ll post a Trader’s Notebook update.

What’s happening now? The S&P 500 E-mini futures rose as the opening bell approached, coinciding with the release of August’s jobs numbers in the U.S., showing a 315,000 increase in non-farm payroll employment and also a 0.2 percentage point rise in the unemployment rate, to 3.7%.

What does it mean? The rise carried the upward correction that began on September 1 into the low 4000s, more than 100 points above where the correction began. The correction, when complete, will be followed by a resumption of the downtrend that began on August 30 from 4072.75.

What are the alternatives? Internally, the correction is in its 3rd leg. How should this be interpreted? As the 3rd and final leg of the correction? As the final leg of the first leg within the correction (if it takes the form of a Flat)? Or as the middle wave within the first leg of the correction (if it takes the form of a Zigzag)? It’s too soon to tell, but the choices are worth keeping in mind while studying the chart.

[S&P 500 E-mini futures at 3:30 p.m., 45-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, wave 4{-10} is underway. The wave is an upward correction that began on September 1 from 3902.50. The correction will be followed by a resumption of the downtrend that began on August 30 from 4072.75, as wave 5{-10}, which is likely to carry the price below 3902.50, the starting point of the correction.,

All of this is happening with wave 3{-9}, a downtrend that began on on August 30, which in turn is the middle wave of wave 3{-8}, which began on August 26 from 4117.25. The parent wave of the entire structure is wave 1{-7}, the initial wave within downtrending wave 3{-6}. Both began on August 16 from 4327.50.

The major trend that will dominate the markets for months to come, maybe for a year or so, is five degrees larger, wave 4{-1}, a downtrending wave that began on January 4 from 4808.25. It is the next-to-the-last wave within a very large expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018 from 2346.58 and that reached its low, so far, of 2191.86 on February 23, 2020, the end of the early pandemic crash.

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, September 2, 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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