Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fall, slightly, during the trading session, reaching 30 points plus change below the 4354 level that triggered a reworking of the analysis, which remains as it was with this morning’s revision: The downward correction that began on February 2 continues. In Elliott wave terminology, the correction is wave 4{-9}. I’ve updated the chart.

11:02 a.m. New York time

S&P 500 futures fall below 4354. In my discussion this morning, below, I made the case for 4354 being an important price level in interpreting the chart. I said that a fall below that level would change the principal analysis.

At the time of this posting the price fell below 4354, down to 4340.50 so far.

Here’s the new principal analysis:

The downward correction that began February 2 from 4586 continues and is taking the form of a compound correction. The first corrective pattern ended on February 14 at 4354, and after a rise that connects the first pattern with what follows, a second corrective pattern has begun.

In Elliott wave analysis terminology: Wave 4{-9}, which began on February 2, is underway. Wave C{-10} within that 4th wave was completed on February 14. It was followed by wave X{-10} to the upside, which connects the first corrective pattern with a second pattern, which begins with wave A{-10} to the downside.

10:25 a.m.. New York time

MS earnings play exit. I’ve completed the second leg of my exit from an iron condor position on MS — I exited the puts on February 11, and today, the last trading day before expiration, I exited the calls. Overall, the iron condor produced a 53.2% loss. I’ve updated the trade analysis with the iron condor results, and it also has results for each leg of the exit.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to 4511.50 in overnight trading and then quickly retreated to 4359.50, just five points above the low of February 14.

What does it mean? The February 14 low, 4354, is important in analyzing the pattern on the chart, allowing us to distinguish between two possible interpretations. More on both in the Elliott wave theory section, but in plain terms, without the analytical jargon —

If the price remains above 4354, as it has so far, then it’s likely that the final leg of the downward correction that began on February 2 ended on February 14, and an uptrend has begun that will carry the price potentially into the 4700s and above.

What’s the alternative? If the price moves below 4354 — the low of February 14 — then under the rules of Elliott wave analysis the downward correction that began on February 2 is still underway.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour bars, with volume]

What does Elliott wave theory say? The February 14 low is the beginning of wave 1{-10} within wave 5{-9}, an uptrend that has the potential of carrying the price significantly higher, although it must remain below the peak of 4808.25 set on January 4. That limit on upward movement is imposed at a higher degree: Wave 2{-7} to the upside is underway, 4808.25 marks the starting point of wave 1{-7} to the downside, and under the the Elliott rules no 2nd wave can move beyond the start of the preceding 1st wave of the same degree.

The limit on the downward movement is imposed the same restriction at a lower degree: Wave 2{-10} to the downside is underway, 4354 marks the starting point of wave 1{-10} to the upside, no 2nd wave can move beyond the starting point of the preceding 1st wave of the same degree.

If the price does move below 4354, then the parent wave 4{-9}, a downward correction that began on February 2, is still underway. Internally, wave 4{-9} has completed one three-wave corrective pattern at the {-10} degree, and the rise that began from February 14 to February 16 is wave X{-10}, a wave that connects the first corrective pattern with a second one that began on February 16 from 4484.50.

What the situation lacks in certainty it makes up for with clarity, a situation that warms the heart of any Elliott wave analyst.

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.

  • 5{0} Intermediate, 12/21/2018, 2316.75 (up)
  • 3{1} Minor, 3/23/2018 2174 (up)
  • 5{-2} Minute, 10/4/2020, 4267.50 (up)
  • 4{-3} Minuette, 1/4/2022, 4808.25 (down)
  • A{-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)
  • 2{-7} Minuscule, 1/24/2022, 4212.75 (up)
  • C{-8} Subminuscule, 1/26/2022, 4263.75 (up)
  • 5{-9} Bitsy, 2/14/2022, 4354 (up)

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it this way 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, February 18, 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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