Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose during the session, reaching into the low 3900s on the futures. Wave C{-14} within an upward correction, wave 2{-13}, continues. Under the rules of Elliott wave analysis, a 2nd wave cannot move beyond the start of the preceding 1st wave. On the futures chart, wave 1{-13} began at 3950. If the present rise should exceed that level, then the analysis doesn’t match the chart — the map doesn’t match the territory — and I shall reanalyze.

At this point, the two alternatives are off the boards, and only the principal analysis remains. I’ve updated the upper chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly overnight, exceeding Wednesday’s high of 3875 shortly after the opening bell after for the most part remaining the mid-3900s.

What does it mean? The upward correction that began on June 30 continues and is in its third and final segment. When the correction is complete, it will be followed by an energetic downtrend that will carry the price below the correction’s starting price, 3741.25, and perhaps significantly below that level.

What are the alternatives? There are two.

Alternative #1: Wednesday’s high was the end of the correction. The subsequent slip downward is the first tentative step in the downtrend.

Alternative #2: The correction forms a compound structure, linking two or three corrective patterns together, each connected by a declining segment.

The charts. The upper chart gives a view of the S&P 500 futures stretching back to late May. The lower chart shows the S&P 500 index stretching back to mid-November.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]
[S&P 500 index at 9:35 a.m., 2-day bars, with volume]

What does Elliott wave theory say? Under the principal analysis, wave C{-14}, the final wave of an upward correction, wave 2{-13}, is underway. When complete, wave 2{-13} will be followed by downtrending wave 3{-13}. Third waves tend to be energetic and to cover significant distances compared to other waves in a trend.

Under alternative #1, the July 6 high, 3875, was the end of wave C{-14} and its parent, wave 2{-13}. Downtrending wave 3{-13} has begun.

Under alternative #2, wave 2{-13} is forming a compound correction, linking two or three corrective patterns together. Each pattern is connected to the one that came before by an X wave — X{-14} in this case. If this alternative is correct and Wednesday’s high was the end of wave C{-14}, then the present slip downward is the start of wave X{-14} within wave 2{-13}. If wave C{-14} is not yet complete and this alternative is correct, then wave X{-14} lies in the future.

All of this is happening within a series of downtrending waves, each of increasing magnitude compared to the one that came before. The wave of lowest degree is wave 1{-12}, which began on June 28, and the series stretches up 10 degrees of magnitude to wave 1{-2}, which began on January 4. The parent of them all is wave 4{-1}, a downward movement of large degree that began on January 4 and part of an expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018.

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, July 7, 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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