Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 fell during the session, coming close to 4050 on the futures. No change in the analysis. I’ve updated the upper chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures stair-stepped lower in overnight trading.

What does it mean? The final segment of a low-level downward corrective pattern that began on May 30 is nearing its end. It will be followed by a rise that will complete the larger upward correction that began on May 12.

What are the alternatives? if the low-level correction forms a compound structure, then the first corrective pattern will be connected to a second corrective pattern and perhaps a third.

Charts. The upper chart shows the near-term S&P 500 E-mini futures, from early May. The lower chart shows the long term S&P 500 index, from December 2018..

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]
[S&P 500 index at 9:33 a.m., 2-day bars]

What does Elliott wave theory say? There are two corrections of different degrees on the chart.

The lower-degree downward correction, wave 4{-11}, began May 30. Internally, it is the 5th and final wave of its third wave, C{-12}. When wave C{-12} is complete, in the normal course of things that wold be the end of wave 4{-11}. Wave 5{-11} would then carry the price higher. That’s the principal analysis.

Under the alternative analysis, wave 4{-11} will form a compounds structure. Wave C{-12} is followed by a connector, wave X{-12}, and then by a second corrective pattern. Such compound correction can contain up to three patterns. Once wave 4{-11} is complete, then wave 5{-11} will begin its rise.

The higher-degree upward correction is wave 4{-9}, which began on May 12 and is now in its 3rd wave internally, wave C{-10}, which began on May 20. Wave C{-10} will have five waves internally. Wave 4{-11}, the lower degree correction, is the next-to-the-last wave within C{-10}.

The end of wave C{-10} would normally be the the end of wave 4{-9}, but there’s the possibility here, at the higher degree, that wave 4{-9} will form a compound structure. If 4{-9} is a simple correction, wave 5{-9} will follow, carrying the price to significantly lower level. If it’s a simple correction, then wave C{-10} will be followed by a connecting wave, X{-10}, and then another corrective pattern and perhaps a third. After all of that, wave 5{-9} will begin its fall.

Move a degree higher, and things get simple. A downtrend of major proportions began on January 4, ending wave 3{-1}, the rise that began on February 23, 2020, the end of the early pandemic crash. What followed is wave 4{-1} to the downside — it’s still underway — and working up from one step above the future wave 5{-9}, we’re in wave 5{-8}, which began on April 21, within wave 5{-7}, from March 29, and within five increasingly larger waves that began on January 4, waves 1{-6}, 1{-5}, 1{-4}, 1{-3} and 1{2}.

Bottom line: There’s a lot of downside ahead of us in this chart. But as is always the case in the markets, a downtrend is built from smaller uptrends and downtrends, which in turn are built in the same way, at smaller and smaller levels. There will be ways to trade and profit along the way.

Market charts and their wave structures are visual representations of decisions made by millions of traders, and in that respect they are maps of human thought. I find the Elliott wave patterns to be an elegant structure, a thing of profound beauty.

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.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 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)
  • S&P 500 Futures and index:
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 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, June 9, 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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