Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 peaked in the first half hour of trading, at 4016.25 on the futures, and since then has declined back into the mid-3900s. The further the decline, the more likely it is that the morning’s peak was the end of the first leg of the upward correction that began on July 14. If the price reverses and moves still higher, then that first leg of the correction is still underway.

The possibilities, using the terminology of Elliott wave analysis: Wave 4{-12}, an upward correction, is still underway. It’s first internal wave, A{-13}, might have ended this morning at 4016.25, but that is not yet a certainty. If the A wave did end this morning, then wave B{-13} to the downside has begun.

I’ve updated the chart, leaving this morning’s ambiguous labelling in place.

9:55 a.m. New York time

NEE earnings play exit. I’ve exited my short bull put vertical spread on NEE for 35% of maximum potential profit and have updated the trade analysis with full results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded in a narrow range overnight and then moved higher at the opening bell, to 4009, which is 4.25 points above yesterday’s peak.

What does it mean? The chart is trapped in the same ambiguity that it has gripped it for several days: Each high possibly could be the end of the first leg of the upward correction that began on July 14 from 3723.75. But it’s also possible that further highs lie ahead before the next leg of the correction begins. Whichever scenario plays out, the one certainty is that the upward correction is still underway.

What is the alternative? Because of the ambiguity of the chart at this point, rather than a principal analysis and an alternative, I’m going with two principal analyses, of equal likelihood, as described in the “What does it mean?” section, above.

[S&P 500 E-mini futures at 3:30 p.m., 125-minute bars, with volume]

What does Elliott wave theory say? On the chart, I’ve placed the notations for both possible scenarios, each with a line of question marks at the top to flag the ambiguities. Within the upward correction, wave 4{-12}, either wave A{-13} is still underway, with further upside ahead beyond the high so far today, 4009, or wave B{-13} began at the peak high and is now descending.

Whichever scenario proves to be true, upward wave A{-13} is or will be followed by downward wave B{-13}, and then by upward wave C{-13}, likely completing the parent wave 4{-12}. Another less likely possibility is that wave 4{-12} will form a compound structure. If that’s the case, then wave C{-13} will be followed by a descending connector, wave X{-13}, and then a second corrective pattern.

When wave 4{-12} is complete, wave 5{-12} will carry the price down into the 3700s and possibly into the 3600s or lower.

This is all happening within wave 5{-11}, a downtrending wave that began on June 8 from 4164. As is always the case with the fractal structure of market charts, wave 5{-11} is a subwave of a parent wave, in a genealogy of waves that stretch far in the past. See the “We Are Here” section below for a list of ancestral waves back to the great bull market that began in 1932..

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)
  • 5{-9} Bitsy, 5/30/2022, 4202.25 (down)
  • 3{-10} Subbitsy, 6/2/2022, 4189 (down)
  • 5{-11} Deci, 6/8/2022, 4164 (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 22, 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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