Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has risen during the session, reaching a high so far of 4064 on the futures, nearly 60 points above the overnight low. The rise carried the price from 61.8% retracement of the rise from July 18 to August 16 up to near the 50% retracement level of that rise. In Elliott wave analysis terms, wave 5{-13} may have ended its decline at the overnight low. If so, then the subsequent rise the beginning of wave B{-12}. That’s have I’ve updated the chart. If not, then the rise is a bump during wave 5{-13}’s continuing decline.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures opened nearly 20 points below Friday’s close when trading resumed Sunday evening. The price then traded overnight in a narrow range with a slight downward tilt, bringing the price to a low so far of 4006.75.

What does it mean? Because of the power and length of Friday’s steep fall, I’ve redone the analysis of the rise and fall that began on August 23. Under the new principal analysis, the rise that ended on August 26 is an upward correction of small degree, the next to the last part of a downward movement that began on August 16. The decline that followed is the final portion of that downtrend, which is itself the first leg of a larger downward correction. See the Elliott wave theory section for more detail.

What are the alternatives? There are two.

Alternative #1: It’s still possible that Friday’s principal analysis, now discarded, was in fact correct. That scenario labelled the rise that ended on August 26 as the first leg of the upward correction. Under this labeling, the subsequent swift decline would be the second leg, and a quick reversal to the upside would be the third leg.

Alternative #2: Another alternative changes the labeling of the entire rise from July 14 as having reached completion on August 16, and the decline that followed as being the early stages of a downtrend rather as a portion of a downward correction.

[S&P 500 E-mini futures at 3:30 p.m., 115-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, Friday’s sharp decline, which fell further to 4006.75 overnight, is wave 5{-13}, the final wave within wave A{-12}, which is itself the first leg of a downward correction, wave 4{-11}, that began on August 16. Wave A{-12} will be followed by upward wave B{-12}, the second wave of the wave 4{-11} correction, and then downward wave C{-12}, which will bring the correction to completion. Some corrections form compound structures, and if that’s the cases here, then wave C{-12} will be followed by a second corrective pattern.

Under this scenario, wave A{-12} has reached a Fibonacci level that retraces 61.8% of wave 3{-11}, which ran from July 18 to August 16. A 61.8% retracement is one of the most common that I’ve seen while working with Elliott wave theory, and a reversal from that point would lend credence to the principal analysis.

Under the first alternative, the rise that ended August 26 was the end of wave A{-14}, the first leg of an upward correction, wave 4{-13}, that began on August 23. The decline that began on Friday is wave B{-14}, and it will be followed by a rise, wave C{-14}, that will complete the correction, unless it extends in a compound structure. Wave 4{-13} will be followed by a decline, wave 5{-13}, that will complete the parent, wave A{-12}, and it will be followed by uptrending wave B{-12}, the middle wave the downward correction, wave 4{-11}, which began on August 16. Basically, this scenario moves the wave labeling of the principal analysis up by one degree.

The second alternative makes a larger change to the chart. Under this scenario, the August 16 peak is the end of wave 5{-11} and its parent, wave 3{-10}, an uptrend that began on July 14. The subsequent decline is wave 4{-10}. This scenario moves the wave labeling still higher.

At a larger level, the S&P 500 is in a downtrend of large degree, wave 4{-1}, which began on January 4 from 4808.25 and which will be with us into 2023 and perhaps into 2024.

That’s a lot of ambiguity, and I’m not confident that the principal analysis is indeed the most likely of the three. As always, the charts movements to come will make things clear.

And what all three scenarios have in common is that 1) the S&P 500 is in a downward correction that will be a followed by a rise back into the 4300s.

At a larger level, the S&P 500 is in a downtrend of large degree, wave 4{-1}, which began on January 4 from 4808.25 and which will be with us into 2023 and perhaps into 2024.

So, longer term, think downward thoughts. Elliott wave analysis shows that this is not a bull market, and won’t be one for some time to come.

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, August 29, 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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at