Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to fall during the session, reaching below Friday’s low, 3855.25, into the 3820s. No change in the analysis. I’ve updated the chart.

10:35 a.m. New York time

SPY bear play entry. I’ve entered a short bear call vertical spread on SPY, using options that trade for the last time on January 20 last year, and have posted a full analysis of the trade.

9:55 a.m. New York time

DRI earnings play exit. DRI beat earnings and yet the price fell, contrary to the direction of my trade. I exited my short bull put options spread after holding the position over the weekend, for a small 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 rose slightly in overnight trading, remaining above Friday’s low, 3855.25.

What does it mean? The downtrend that began on December 13 continues and internally is in its first of five segments. The overnight rise is a small upward correction within that first segment.

What are the alternatives? There are two.

Alternative #1: The upward correction that began on October 13 from 3502 is still underway and the downtrend has not yet begun. The decline that began on December 13 is the second segment within the third and final of the upward correction. This scenario will remain a possibility as long as the wave remains above 3704.25, the starting point of the correction’s final segment, which began on November 3.

Alternative #2: The upward correction is forming a compound structure that will contain two or three corrective patterns. The first pattern, a Zigzag, ended on December 13. The decline that followed is a segment connecting the now complete first corrective pattern with a future second corrective pattern. This possibility won’t be eliminated until the price drops below 3502, the starting point of the upward correction.

Chart notes. I’ve broadened the chart to include all of the downtrend that began on August 16, the parent trend within which the principal analysis and the two alternatives are happening.

The broader view serves two purposes:

  • It makes it clear that the decline from December 13, which looks massive on a chart focused on the end of the correction and the decline followed, is really fairly small in the general scheme of things. Reading a stock chart is in part about understanding the relative proportions.
  • It provides complete understanding of the timespans that govern my trading. I’m not a day trader, but I’m also not a long-term buy and hold trader. My time horizon is less than a year, often a couple of months or, sometimes, a couple of days. This chart breadth helps me understand the context in which I trade.

[S&P 500 E-mini futures at 3:30 p.m., 345-minute bars, with volume]

What does Elliott wave theory say? Here are the waves I’m focused on.

Looking first at the principal analysis:

  • The downtrend that began on December 13 is wave 3{-7}.
  • Internally, wave 3{-7} is in its first of five segments, wave 1{-8}.
  • The overnight rise, within wave 1{-8}, is a 4th wave, possibly wave 4{-10} or even smaller.

Looking at the alternatives:

  • The upward correction, which began on October 13, is wave 2{-7}.
  • Under Alternative #1, wave C{-8} within wave 2{-7} is still underway, and the decline that began on December 13 is a correction within wave 2{-7}.
  • Under Alternative #2, the December 13 high is the end of wave C{-8}, and the decline that began on that date is wave X{-8}, connecting the last subwave of the first corrective pattern with the first subwave, A{-8}, of the second corrective pattern.

All of this is happening within wave 3{-6}, a downtrend that began on August 16 from 4327.50.

On the chart and in the discussion above, numbers are used to label trending waves and letters to label corrective waves. The waves on a stock chart are complex, with each wave containing smaller waves and in turn, each wave is the subwave of a still larger wave.

Where a wave stands within that complex structure is called its “degree”, and I’ve numbered each degree with a subscript, contained in curly brackets. I begin the wave numbering at the degree called “Intermediate” by the developer of Elliott wave analysis in the 1930s, an accountant, R.N. Elliott. The subscript for the intermediate degree is {0}. Smaller degrees get a negative subscript, and larger ones, a positive subscript.

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)
  • 3{-6} Submicro, 8/16/2022, 4327.50 (down)
  • 3{-7} Minuscule, 12/1/2022, 4110 (down)
  • 1{-8} Subminuscule, 12/1/2022, 4110 (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, December 19, 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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