Trader’s Notebook

3:15 p.m. New York time

Half an hour before the closing bell. After a quiet night the S&P 500 futures began to to fall during session, from the 3950s to the 3910s, reaching levels last seen a week earlier.

That decline is enough to give this morning’s alternative analysis the edge, and I’ve promoted it to primary analysis: The first leg of the upward correction that began on July 14 ended on July 22 at 4016.25, and the middle leg of the correction is now underway.

In Elliott wave terminology: The upward correction is wave 4{-12}, and within it wave A{-13} was completed on July 22, and wave B{-13} began from that point.

Wave 4{-12} appears to be taking the form of a Zigzag, which means that the B wave will retrace 38% to 79% of the preceding A wave. Wave A{-13} was 292.50 in length, so wave B{-13} will cover 111.15 to 231.08 points, giving price targets in the range of 3905.10 to 3795.17. Futures prices move in 25-cent intervals, so there will be some rounding on the chart as wave B{-13} progresses.

Wave B{-13} will have three waves internally, at the {-14} degree.

3:05 p.m. New York time

UPS earnings play exit. I’ve exited my short bull put options spread on UPS for 56.2% f maximum potential loss and have updated the trade analysis with full results.

2:30 p.m. New York time

BG earnings play entry. I’ve entered a short bull put spread on BG, using options that trade for the last time on 9/19, and have posted an analysis of the trade.

11 a.m. New York time

MCD earnings play exit. I’ve exited my short bull put options spread on MCD for 17.2% 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 were caged in a narrow range overnight, remaining below Friday’s high (4016.25) and above that day’s low (3941.50).

What does it mean? The chart remains ambiguous. As the principal analysis, I’ve marked the chart to show that within the upward correction that began on July 14, the first leg is underway.

What is the alternative? The alternative is of equal likelihood: The first leg of the correction ended on June 22 at 4016.25.

[S&P 500 E-mini futures at 3:30 p.m., 135-minute bars, with volume]

What does Elliott wave theory say? The upward correction is wave 4{-12}, and under the principal analysis, it’s first internal wave, rising A{-13} is underway. Under the alternative analysis, wave A{-13} ended on July 22 and descending wave B{-13} — the middle of a three-wave corrective pattern — is now underway.

The chart can be read either way, so basically, choosing between the principal analysis and the alternative is the flip of a coin.

It’s possible that wave 4{-12} will form a compound structure, connecting two or three corrective patterns before reaching its end. Among the two positions of corrective waves, compound corrections are more common in 4th waves than in 2nd waves. In both cases, most corrections are simple, with a single corrective pattern.

Whatever the form of wave 4{-12}, it will be followed by wave 5{-12}, a resumption of the wave 5{-11} downtrend that began on June 28. Wave 5{-12} will carry the price down into the 3700s, probably 3600s and perhaps even lower.

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 26, 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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