3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has worked its way higher during the session, reaching into the 4150s on the futures. The rise isn’t enough to draw any conclusions about whether the first leg of the downward correction that began on August 16 is complete. That’s wave A{-12} within wave 4{-11}. So, no change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to trade in a narrow range overnight, falling to 4110.25 and then reversed, reaching back into the 4140s,

What does it mean? The downward correction that began on August 16 continues and is in its first of what will likely be three legs. When complete, the first leg will be followed by a rise that will remain below the August 16 peak, 4327.50, and then will fall again. If the correction forms the common three-leg pattern, then that fall will be the end of the correction and a rise that will probably reach above the August 16 peak.

What is the alternative? Each lower low could be the end of that first leg decline. The higher any reversal travels, the more likely it is that the alternative analysis best matches the chart.

What does Elliott wave theory say? Wave 4{-11}, a downward correction, began on August 14 from 4327.50. Internally, under the principal analysis, it is in the late stages of wave A{-12}, the first wave of the correction. Fourth waves tend to take the three-wave Flat pattern, with three waves within wave A, three within B and five within C (3-3-5).

The price has spent two trading sessions trading narrowly around the 38.2% Fibonacci retracement level (the Fibonacci ladder is shown on the chart in red). The most common end points for 4th wave are retracement levels 38.2%, 50% and 61.8%. Typically, the end point will be reached within the third subwave of the correction, wave C{-12} in this case.

Fourth waves tend to end within the range of the 4th subwave of the preceding 3rd-wave rise. Wave 4{-12} within wave 3{-11} ran from 4147.25 to 4080.50, so wave A{-12} is already within that range.

Wave 4{-11} will be followed by uptrending wave 5{-11}, which likely will carry the wave above 4327.50, the starting point of wave 4{-11}. Fifth waves sometimes fall short of that level, in which case it’s called a “truncated 5th”. Other times 5th waves add subwaves and rise higher, sometimes to extraordinary heights, in which case it’s called an “extended 5th”.

In any case, wave 5{-11} will remain below the January 4 high, 4808.25, which was the beginning of a major downward wave of much higher degree, wave 4{-1}.

Bottom line: We have some upside ahead but the future beyond that is a major downer, with the usual smaller ups and downs along the way.

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 24, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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, sticking close to the 38.2% Fibonacci retracement level, in the 4730s on the futures. The analysis is unchanged. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to fluctuate around the 38.2% Fibonacci retracement level in overnight trading, hitting a low of 4118.

What does it mean? The downward correction that began on August 16 continues and is in the first of three legs. In my experience, three Fibonacci retracement levels are most likely to be pause or reversal points in retracements: The 38.2% level, the 50% and the 61.8%.

What is the alternative? So far it’s unclear whether this pause will turn into a reversal or not. The low is within the correction’s target range. If it’s a reversal, then the second (middle) leg of the correction will begin, or has begun already.

What does Elliott wave theory say? The downward correction, wave 4{-11}, began on August 16 from 4370.50. Internally, it is its 1st wave, A{-12}. Under the principal analysis, wave A{-12} has more downside ahead of it. Under the alternative analysis, wave A{-12} ended at the overnight low, 4118, and wave B{-12} has begun its rise.

Fourth wave corrections tend to end within the 4th subwave of the preceding 3rd wave — that is, within the 4th wave of the wave that’s being corrected. Wave 4{-12} within wave 3{-11} went from 4147.25 down to 4080.50, and that’s the target range for the wave 4{-11} correction.

This is all happening within wave 3{-10}, an uptrend that began July 14 from 3723.75. In the larger picture, the S&P 500 is in a downtrend, wave 4{-1}, which began on January 4 from 4818.64.

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 23, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

6:25 p.m. New York time

Correction. I’ve corrected paragraph 2 of the 3:30 p.m. post to clarify that wave 5{-11} likely will move above the August 16 high but will remain below the January 4 high, when a major downward movement, wave 4{-1}, began.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures having continued their decline during the session, reaching a low of 4133, a few cents below the 38.2% Fibonacci retracement level. The decline also put wave 4{-11} within the target range for a 4th wave, the range covered by wave 4{-12} in early August, within the preceding uptrend, wave 3{-11}, which ran from July 18 to August 16.

The downward correction, wave 4{-11}, is in its first internal wave, downward wave A{-12}, and if it takes the pattern of a Flat, as 4th waves tend to do, it still has two waves left before completion: Rising wave B{-12} and then downward wave C{-12}. Typically, the C wave will end the correction, and uptrending wave 5{-11} will begin its rise, most likely above the August 16 high, 4327.50, although it will remain below the January 4 high, 4808.25.

No change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to fall when trading resumed Sunday evening, reaching a low of 4170 shortly after the opening bell.

What does it mean? A downward correction that began on August 16 from 4237.50 is underway. So far it has retraced more than a quarter of the rise that began on July 18 from 3820.25.

What are the alternatives? The further the price falls, the less plausible the alternative analysis becomes, that the decline from August 16 is a correction within the uptrend from July 18. Less plausible falls short of impossible, so I’m keeping the alternative on the table for now.

The chart. I’ve superimposed a Fibonacci grid, in red, to provide context for the extent of the decline. So far the price has pushed beyond the 23.6% Fibonacci retracement level.

What does Elliott wave theory say? Under the principal analysis, the downward correction that began on August 16 is wave 4{-11} within a still ongoing uptrend, wave 3{-10}, which began on July 14 from 3723.75. Wave 4{-11} is retracing wave 3{-11}, which began on July 18 from 3820.25.

Internally, I count wave 4{-11} as being in the first wave, A{-13} within the larger first wave, A{-12}, of the downward correction. However, the early waves of a trend or correction are notoriously ambiguous regarding where they fit in the fractal hierarchy of Elliott wave analysis, and that is certainly the case here. “Fit in the fractal hierarchy” is a technical way of saying, “How big is this wave compared to other waves?”.

Since the correction is a 4th wave, it typically will end within the range of the 4th wave within the preceding 3rd wave, which is between the 4190s and the 4070s, a retracement between the 38.2% and 50% Fibonacci levels.

Under the alternative analysis, wave 3{-11} is continuing its rise that began on July 18.

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 22, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has trended downward during the session, reaching a low so far of 4220.75 on the futures. Wave 4{-11}, a downward correction, continues. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, reaching into the 4240s, nearly 90 points below the August 16 peak.

What does it mean? At this point I’d say that the principal analysis, shown on the chart, and the alternative analysis are of nearly equal likelihood.

I’ve switched the principal and the alternative from yesterday. Under the new principal analysis, the decline from the August 16 peak, 4237.50, is a downward correction of the rise that began on July 18. The August 16 peak was the end of the final leg of that uptrend, which began on August 9. Under this scenario, the correction is larger and the uptrend will eventually resume, but not quickly.

What are the alternatives? The alternative — yesterday’s principal analysis — is to consider the August 16 peak to be a stopping point within the ongoing uptrend and the subsequent decline to be a correction within that uptrend. Under this scenario, the correction is smaller and the uptrend will quickly resume.

What does Elliott wave theory say? There is a powerful ambiguity to the downtrend, and it points to a major difficulty in applying Elliott wave theory to a current chart.

Under the principal interpretation, the uptrend that began August 9 is wave 5{-13} within wave 5{-12} within wave 3{-11}. Internally, wave 5{-13} is in its final wave, 5{-14}, which began on August 11 from 4202.75.

Under the alternative interpretation, wave 5{-13} ended at the August 9 peak, as did its larger encompassing waves, 5{-12} and 3{-11}.

This sets up different scenarios for the decline. Under the principal analysis, the decline is wave A{-13} within wave A{-12} within wave 4{-11}, a downward correction. Fourth waves usually take the form of a Flat — three waves, the first two with three internal waves and the third with five internal waves (3-3-5). Under the alternative analysis, the decline is wave 4{-15} (perhaps), a 4th wave correction within uptrending wave 5{-14} within wave 5{-13}.

The decline so far has shown five waves, but that only means that they are of a smaller degree within wave A{-12} — perhaps wave 1{-14} or 1{-15} within wave A{-13} within wave A{-12}. Or it could be that the correction is forming a Zigzag pattern, with internal waves 5-3-5. A Zigzag 4th wave is slightly less common than a Flat, but it happens often enough.

I chose to switch the analyses from yesterday because the final wave of the uptrend, 5{-14}, was becoming disproportionate to the preceding third wave. That is, it seemed longer than usual, although there is no rule forbidding an extended 5th wave.

Of course, a reversal and a rise above the August 16 peak, 4237.50, will mean that my new principal analysis doesn’t match the chart and the alternative analysis is the better choice.

These ambiguities are happening within wave 3{-10}, an uptrend that began on July 14 from 3723.75. When wave 4{-11} is complete, it will be followed by an uptrend, wave 5{-11}, that will carry wave 3{-10} to completion and, most likely, to new heights.

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 19, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded narrowly day, ranging from the 4260s to the 4290s on the futures. No change in the analysis. The uptrend that began on August 9, wave 5{-13}, continues. I’ve updated the upper chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded in a narrow range overnight, between the 4260s and the 4290s, remaining below the August 16 peak, 4327.50.

What does it mean? The shallowness of the pullback — the lack of energy to the downside — suggests to me that the uptrend that began on August 9 from 4113 is still underway and that the price will push beyond the most recent peak to a higher high. Under this principal analysis, the shallow decline has been a downward correction within that uptrend.

What is the alternative? As has been the case for several days, the alternative is that the August 16 peak was the end of the uptrend that began on August 9 and the subsequent shallow decline is the first, tentative step of a downtrend.

The charts. The upper chart is a close-up of the S&P 500 E-mini futures for July and August. The lower chart shows the entirety of the major bull market from December 2018 to the present.

What does Elliott wave theory say? The uptrend that began on August 9 is wave 5{-13}, the final wave of the trend within a larger uptrend, wave 5{-12}, which began on August 2 from 4080.50.

The fractal structure is in turn internal to wave 3{-11}, the middle wave of an uptrend that began on July 18 from 3920.25, which in turn is the middle subwave of a larger uptrend, wave 3{-10}, which began on July 14 from 3723.75.

When wave 5{-13} is complete — it ended on August 16 according to the alternative analysis and still has more upside to go according to the principal analysis — it will also be the end of its parent wave, 5{-12}, and also of wave 3{-11}, which is larger by one degree.

If we focus nine degrees larger, we find the market of July and August is a small portion of wave 4{-1}, a major downtrend that began on January 4 from 4818.62, which is in turn the penultimate subwave within wave 5{0}, an expanding Diagonal Triangle that is the final wave of an uptrend that began the day after Christmas, on December 26, 2018 from 2346.58 on the index, which reached a high, on August 16 at 4325.28.

What a nice Christmas present that rise of nearly 2,000 points has been for bullish traders. And when downtrending wave 4{-1} is complete, wave 5{-1} will resume that rise that began in 2018, carrying wave 5{0} to new heights.

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 18, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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.

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.

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

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 resumed its climb, reaching 4327.50 on the futures. The uptrend that began on August 9 continues, confirming this morning’s principal analysis. In Elliott wave analysis terminology, wave 5{-13} and its enclosing waves two degree up on the fractal structure, waves 5{-12} and 3{-11}, are still underway. I’ve updated the chart.

10:20 a.m. New York time

HD earnings play exit. I’ve exited my short bull put options spread on HD for 27.8% of maximum potential profit, above my 25% minimum goal, and have 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 declined slightly overnight, remaining in a narrow range below yesterday’s high, 4304.75.

What does it mean? The possibilities today are the same as they were yesterday. Under my principal analysis, the uptrend that began on August 9 is still underway, within a larger uptrend that began on July 14. The price will soon reverse and rise above yesterday’s high.

What is the alternative? It’s also possible that yesterday’s high ended the rise that began on August 9, and the subsequent shallow decline is the first, tentative step in what will become a larger decline.

What does Elliott wave theory say?

Under the principal analysis, wave 5{-13}, which began on August 9, is still underway. It is a subwave of wave 5{-12} within wave 3{-11} within wave 3{-10}, the last and largest parent wave having began on July 14 from 3723.75. The end of wave 5{-13} will also mark the end of wave 5{-11} and of 3{-10}. It will be followed by a downward correction, wave 4{-10}, which will take back a portion of the rise from July 14, When complete, wave 4{-10} will be followed by wave 5{-10}, which likely will carry the price above the wave 3{-10} peak.

This is all happening within uptrending wave 1{-9}, which began on June 17, within a much larger downward movement, wave 4{-1}, which began on January 4 from 4818.62.

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 16, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

The Home Depot Inc. (HD)

Lot 2022-2

Update 8/16/2022: I exited my short bull put vertical spread on HD, 31 days before expiration, for a $1.35 debit per contract/share, a profit before fees of $52 per contract. Shares were trading at $319.09, up $4.94 from the entry level.

The Implied Volatility Rank at exit was 43.1%, up 3.5 points from the entry level.

I exited on the day after entry because the position exceeded 25% of maximum potential profit, my normal exit point for earnings plays. The trade earned 27.8% of max.

Shares rose by 1.6% over one day for a +574% annual rate. The options position produced a 38.5% return for a +14,059% annual rate.

---

I have entered a short bull put vertical spread on HD, using options that trade for the last time 32 days hence, on September 16. The premium is a $1.87 credit per contract share and the stock at the time of entry was priced at $314.15.

The Implied Volatility Ratio stood at 39.6%.

Premium:	$1.87	Expire OTM
HD-bull put spread	Strike	Odds	Delta
Puts
Long	305.00	60.0%	36
Break-even	311.87	56.5%	39
Short	310.00	53.0%	42

The premium is 74.8% of the width of the position’s short/long spread. The profit zone covers a 0.7% move to the downside and an unlimited move to the upside.

The risk/reward ratio is 1.7:1, with maximum risk of $313 and maximum reward of $187 per contract.

How I chose the trade. The trade was placed to coincide with HD’s earnings announcement, before the openig bell on the day after entry. The short strike was set to coincide with the expected move of $10.87 either way, based on options pricing, which gives a price range of $303.28 to $325.02. The Zacks Investment Research earnings surprise predictor gave HD a score of 0.5%, with a rank of Hold (3). The analysts’ consensus is that HD will announce earnings of $4.95 per share.

By Tim Bovee, Portland, Oregon, August 15, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 resumed its rise early in the session, moving to a new high, slightly above 4300. The reversal confirms the principal analysis. The rise from August 8 is not yet complete. I’ve updated the chart.

1:30 p.m. New York time

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

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell after trading resumed overnight, reaching 4249, more than 30 points below Friday’s high, 4282.75.

What does it mean? The rise that began on August 8 from 4133 is nearing its end and indeed may have been completed by Friday’s high. Or not. The two possibilities are of nearly equal probability. My principal analysis, shown in the chart, is that the trend is still underway., based on my practice of assuming a trend is continuing until I have clear evidence to the contrary.

What is the alternative? The rise from August 8 ended on August 12 at 4282.75. The further the price falls, the more likely the alternative analysis becomes.

What does Elliott wave theory say? Under the principal analysis, the decline is a downward correction within wave 5{-13}, which began on August 9 from 4113. When the correction is complete, the uptrend will resume, moving beyond Friday’s high, 4282.75.

Under the alternative analysis, wave 5{-13} ended on Friday at 4282.75, a point that also marked the end of a series of parent wave: 5{-12} and 3{-11} within 3{-10}, which began on July 14 from 3723.75. Wave 4{-12}, a downward correction, is underway, having begun at Friday’s high.

This is all happening within uptrending wave 1{-9}, which began on June 17, within a much larger downward movement, wave 4{-1}, which began on January 4 from 4818.62.

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 15, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued to climb during the session, reaching above 4276 on the futures. The rise above the overnight high confirms this morning’s principal analysis; the overnight correction has indeed been followed by a resumption of the uptrend.

As has been the case recently, any fresh peak could be the end of the uptrend, which has met of the requirements of Elliott wave analysis. On the other hand, it might still push higher.

In Elliott wave terminology, the present wave set is wave 5{-14} within wave 5{-13} within wave 5{-12} within wave 3{-11} within wave 3{-10}, that last, largest wave of the set having begun on July 14.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to a higher high in overnight trading, 4260.50, and then pulled back a bit.

What does it mean? I’ve analyzed the pullback as a downward correction within the ongoing rise that began on August 9, part of a larger uptrend that began on July 14. The correction likely will be followed by a push to a higher high.

What are the alternatives? The overnight high could have ended the August 9 rise. If so, then it also means the end of the larger rise from August 2, and the still larger uptrend from July 18. The further the price declines today and early next week, the more likely it is that this alternative matches the chart.

What does Elliott wave theory say? Under my principal analysis, the overnight high marks the end of the 3rd internal wave, 3{-14}, within wave 5{-13}. The pullback is wave 4{-14}, and it will be followed by uptrending wave 5{-15}, the final wave within wave 5{-13}. Wave 5{-15} is likely to push above the overnight high, although the 5th wave could be truncated, in which case it will end below that prior high.

Under the alternative analysis, the overnight peak is the end of wave 5{-14}, and also the end of parent waves 5{-13}, 5{-12} and 3{-11}. It will be followed by a decline that will correct a portion of the rise that began on July 18.

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 12, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.