Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures ended their low level upward correction at the overnight high, 4345.50, and began a resumption of the downtrend that picked up speed at the opening bell. The overnight high was the end of wave 4{-9}, and the decline, the beginning of wave 5{-9}. The first decline from the January 4 peak, wave 1{-7}, ended at 4212.75 on January 24, and as the closing bell drew near, the price was again approaching that level, which I’ve marked with a dotted red line on the updated chart below.

Wave 5{-9} is a subwave of wave 5{-8}, which in turn is a subwave of wave 3{-7}. Third waves tend to have a lot of energy as they leap out in the direction of the trend, and that’s what we’re seeing here. Wave 1{-7} lasted for 20 days, and the present movement at that degree, wave 3{-7}, has lasted 21 days. Third waves tend to cover more terrain than first waves, so I expect wave 3{-7} to be with us for weeks to come, with the usual subwave upward corrections to make the journey interesting.

1:25 p.m. New York time

NEM earnings play entry. I’ve entered a short bull put vertical spread on NEM timed to coincide with the company’s earnings announcement tomorrow before the opening bell. I’ve posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? Overnight, the S&P 500 E-mini futures continued to trade 80 points and bit more above the February 21 low of 4250.

What does it mean? A low level upward correction that began two days ago is under way. It will be followed by a decline, most likely to below 4250, perhaps significantly lower.

What’s the alternative? The uncertainty about the degrees of the waves labelled on the chart continue, as is always the case early in trend. The relative degree among the various waves shown is quite clear, so yes, there are ambiguities, but they aren’t of great significance at this point.

[S&P 500 E-mini futures at 9:35 a.m., hourly bars, with volume]

What does Elliott wave theory say? I moved the chart closer in today in order to gain a better understanding of the progress of wave 3{-7}, which began on February 7 from 4586. Internally, wave 5{-8}, the final wave within 3{-7}, began on February 16 from 4484.50. One degree lower, wave 3{-9} is underway, having begun on February 17 from 4411.50, and within it, an upward correction, wave 4{-10}, began on February 21 from 4250 and would appear to be in wave C{-11}, its final wave unless it becomes a compound correction.

The odds favor the downside at this point. When wave 4{-10} reaches its end, then wave 5{-10} will carry the price down. Fifth waves can move quite a distance below the end of the preceding 3rd wave, or they can truncate and never reach that level.

What is certain is that completion of wave 5{-10} will also be the end of its parent, wave 3{-9}, and the beginning of wave 4{-9}, most likely a Flat, which tends to be a sideways correction. The following wave 5{-9} will carry the price down still further, and the end of 5{-9} will also be the end of 5{-8}, which in turn will be the end of wave 3{-7}, which will be followed by a 4th wave correction that is most likely to be a Flat. So once our present wave 4{-10} ends, everything is a downtrend within the larger downtrend, and at the end, it hits what will most likely be a sideways correction, after which the downtrend will resume. The next directional upward movement will be wave 2{-6}, a correction of the decline that began on January 4 from 4808.25. It will remain below that level and will be followed by a truly impressive wave 3{-6} to the downside.

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)
  • 3{-7} Minuscule, 2/2/2022, 4586 (down)
  • 5{-8} Subminuscule, 2/16/2022, 4484.50 (down)
  • 3{-9} Bitsy, 2/17/2022, 4411.50(down)
  • 4{-10} Subbitsy, 2/21/2022, 4250 (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 23, 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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