Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded within a narrow range during the session. The principal analysis is unchanged: Wave 4{-15} within wave C{-14} within wave C{-13}, all within an upward correction, wave 2{-13}, are underway. I’ve updated the chart below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined when trading resumed overnight, reaching down into the mid-3800s, and then rising a little, reaching a high of 3881.50, well below Friday’s high of 3922.

What does it mean? Friday’s high was the end of the middle segment of the 3rd and final leg of an upward correction that began on June 30. The subsequent decline is a downward correction within that final leg. The overnight decline will be followed by a push upward that most likely will exceed Friday’s high and that will end the larger upward correction. Once the correction is over, the downtrend will resume, with the price reaching below 3709.50, the June 30 low, where the upward correction began.

What is the alternative? The upward correction from June 30 may form a compound structure, linking two or three corrective patterns together. Under this scenario, the 3rd leg within the upward correction will be followed by a connector wave to the downside, and then a second corrective pattern.

[S&P 500 E-mini futures at 3:30 p.m., 105-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, Friday’s high is the end of wave 3{-15} within wave C{-14}, the third leg of wave 2{-13}, an upward correction that began on June 30 from 3708.50. The subsequent decline is wave 4{-15}, and it will be followed by wave 5{-15}, the final wave within wave 2{-13}.

What happens next is as yet unknown.

The most likely outcome is that wave C{-14} will be the final wave within wave 2{-13}, which will be followed by an energetic push downward, wave 3{-13}, which will move below the starting point of the wave 2{-13} correction, 3708.50, and perhaps significantly below that level, proportional to the scale of other waves at the {-13} degree, which is fairly small in the general scheme of things.

The alternative analysis acknowledges the possibility of a less common pattern: The compound correction, which links two or three corrective patterns together. I’ve seen compound corrections more often within 4th waves, but a compound 2nd wave correction isn’t unheard off. If wave 2{-13} forms a compound structure, then wave C{-14} will be followed by a downward connector wave, X{-14}, and then by a second corrective pattern. Once the compound correction is complete, then things will play out as described in the principal analysis, above: Wave 3{-13} will carry the price down below the starting point of the previous wave 2{-13}.

This is all happening within wave 1{-12}, the initial decline within its parent, downtrending wave 5{-11}, which is the final wave with its parent, wave 3{-10} — an energetic downtrending wave that began on June 2. It is the middle wave within downtrending wave 5{-9}, which began on May 30 from 4202.25.

Market price movements are fractal in nature — smaller waves within larger waves within still larger waves, each following the same patterns and rules no matter how large or small.

So wave 5{-9} has a parent, wave 5{-8}, which began on April 21, and it’s parent, wave 5{-7}, began on March 29. Another degree higher, wave 1{-6} began on January 4, a major turning point for the price structure reaching up to wave 4{-1}, which began on the same date, from 4818.62.

And the ancestor of them all is wave 5{0}, a huge uptrending wave that began on December 26, 2018, from 2346.58 and that is still underway. And wave 5{0} too has parent and grandparent waves, reaching up to wave 5{+3}, which began on Jul7 8, 1932 and has not yet reached its end.

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 11, 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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