Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 fell during the day in the downward middle wave of an upward correction that began on May 12. The correction is wave 4{-9}, and the middle wave is B{-10}. Fourth waves tend to be Flats,. and that’s how I count wave 4{-9}.

The B wave within a Flat tends to retrace from 100% to 138% of the preceding A wave. Wave A{-10} was 247 points long. If this B-wave retracement behaves normally, it will end between 3855 and 3763.80.

No change in the analysis. I’ve updated the chart, with red lines showing the 100% and 138% retracement levels.

2:20 p.m. New York time

LOW earnings play exit. I’ve exited my short bull put vertical spread on LOW, for 75.6% of maximum potential loss, and have updated the trade analysis with results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures stayed close to the 50% retracement mark in overnight trading, and then declined as the opening bell drew near.

What does it mean? The first leg of the upward correction that began on May 12 ended at yesterday’s high, 4095. The second leg, a downward move, can be expected to retrace at least 90% of the first wave and perhaps as much as 138%.

What’s the alternative? Although the first leg appears to have met the requirements for completion — three subwaves within a Flat pattern — there’s enough ambiguity on the chart to suggest that the first leg may still be unfinished.

[S&P 500 E-mini futures at 3:30 p.m., 35-minute bars, with volume]

What does Elliott wave theory say? Under my principal analysis, wave A{-10} within wave 4{-9} ended at Tuesday’s peak, 4095, and wave B{-10} to the downside has begun. Fourth waves tend to take a Flat pattern — although not always — and Flats internally have three subwaves within the A wave, three within B and five within C. However, if wave 4{-9} turns out to be a Zigzag, then subwave A{-10} must have five waves internally and will rise ore before reaching completion. That possibility is my alternative analysis.

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.

  • Index:
  • 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)
  • Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • Futures:
  • 1{-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)
  • 5{-7} Minuscule, 3/29/2022, 4631 (down)
  • 5{-8} Subminuscule, 4/21/2022, 4509, (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, May 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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