Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. By falling below 3855, the starting point of the first leg of the present upward correction, the price decline during today’s session cleared up one ambiguity in the chart: The wave 4{-9} correction is taking the form of a Flat, which is the most common form taken by 4th waves. That Flat is in its middle segment, wave B{-10}.

Although a 138% maximum retracement of the A wave is a common outcome of the B wave in a Flat, it’s not a firm rule, just a tendency. So the price may well move below the present 3807.50 low of the day toward the 138% retracement level, 3763.80, and might even drop lower. Or, the low of the day might be the end of wave B{-10} and the start of upward wave C{-10}.

No change in the mid-day re-analysis. I’ve updated the upper chart.

1:10 p.m. New York time

A fresh analysis. The S&P 500 reversed and moved below the May 12 low, 3855. That invalidates the principal analysis from this morning and pushes things back to Thursday’s analysis. The middle wave of an upward correction that began on May 12 is still underway.

In Elliott wave terminology, the present wave is B{-10} within wave 4{-9}. The B wave began on May 17 from 4095. B waves often retrace between 100% and 138% of the preceding A wave. This B wave has already broken through the 100% retracement, 3855, and dropping toward the 138% retracement, 3763.80.

Once wave B{-10} is complete, then this morning’s principal analysis of wave C{-10} will kick in.

I’ve retained the old chart and added a new one, with red lines marking the 100% and 138% retracement levels.

[S&P 500 E-mini futures at 3:30 p.m., 40-minute bars, with volume]

10:15 a.m. New York time

FL earnings play exit. I’ve exited my short bull put options spread on FL for 58.5% of maximum potential profit 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 rose overnight, retracing 38.2% of the rise from May 12 to May 17.

What does it mean? The overnight rise is the third leg of an upward correction within a larger downtrend that began on April 21. When the present rise is complete, it will be followed by a resumption of the downtrend that will carry the price below the May 12 low, 3855, and perhaps significantly lower.

What are the alternatives? There are two.

Alternative #1: The upward correction ended on May 17, and the subsequent decline was a resumption of the downtrend, the overnight rise being a smaller upward correction within that downtrend.

Alternative #2: The present corrective pattern will be followed by a second corrective pattern and perhaps a third, forming a compound correction.

[OUTDATED: S&P 500 E-mini futures at 9:35 a.m., 40-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, wave C{-10} within wave 4{-9} — the third leg within an upward correction — began on May 19.

The upward potential of this wave C depends upon the pattern of the three-wave correction.

If it’s a Zigzag (A: 5 waves internally, B: 3, C: 5), then it will often cover the same distance as the preceding A wave, which was 240 points long, giving a target of 4096.

If it’s a Flat (A: 3, B: 3, C: 5), then wave C will often retrace 100% to 165% of wave A, giving a target of 4095 to 4251.

Under Alternative #1, wave 4{-9} ended on May 17 at 4095. The subsequent decline was wave 1{-10} within downtrending wave 5{-9}, and the overnight rise was wave 2{-10}, an upward correction.

Under Alternative #2, the end of wave C{-10} won’t be the end of wave 4 {-9}. Instead, the C wave will be followed by a connecting wave, which I will label wave X{-10}, and then by a second three-wave pattern, and perhaps a third in a compound correction.

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 20, 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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