Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 fell during the session, reaching a low so far of 3886.75 on the futures, well below the end point of the preceding downtrending wave, 3903.50. This is could be important for the interpretation of the chart.

I’ll switch now to the terminology of Elliott wave analysis. The present downtrend is wave 5{-10}, and the preceding downtrend is wave 3{-10}. That’s the principal analysis, and the further the price falls, the more strongly this scenario is confirmed.

The alternative analysis of the last few days complicates the question. The alternative has wave 4{-10}, an upward correction, still underway. Under this scenario, the present downtrend is wave B{-11}, the middle of wave the correction.

Is it OK for a B wave to go below the starting point of the preceding A wave? Which is also the ending point of the preceding 3rd wave? If the correction is taking the form of a 4th-wave Zigzag, which is more common of 2nd waves, then it’s not OK. The rules of Elliott wave analysis forbid it and require a recount if the chart is counted that way. If the correction is a Flat, which more common in 4th waves, then there’s no problem. The internal structure of Zigzags is five waves in wave A, three in B, and five in C (5-3-5). The internal structure of Flags is 3-3-5.

Wave A{-11} within wave A{-10} looks like it has three waves within it to me. Although if I zoom in, then I can also manage a count of five waves. As is so often the case with Elliott wave analysis, there are ambiguities.

Given the fact that a Flat is more common in 4th waves, I’m going to stay with that interpretation, but also will stick with my principal analysis, which says that the upward correction ended on September 2. A quick reversal and a rise above the September 2 high, 4019.25, would keep both the principal and the alternative analyses viable. A continuing and significant decline would eliminate the alternative analysis.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to work their way higher after trading resumed Monday evening, reaching into the 3960s in the hours before the opening bell and then early in the session dropping back into the 3930s

What does it mean? The rise from Friday’s low, 3906, is the first leg of an upward correction within a downtrend that began on Friday from 4019.25. The rise, so far quite small, will be followed by a downward movement and then a final rise that will complete the corrective pattern.

What is the alternative? The upward correction that began on September 1 is still underway. Friday’s peak was the end of the first leg of the correction, the subsequent decline was the second leg leg, and weak rise that began on Friday is the third leg, which is still underway.

[S&P 500 E-mini futures at 3:30 p.m., 45-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, downtrending wave 5{-10} is underway and, internally, has entered its first upward correction, wave 2{-11}. The 2nd wave in turn is in its second segment, wave B{-12}. The B wave will be followed by wave C{-12}, which will complete the correction and which will be followed in turn by wave 3{-11}, the powerful middle wave within wave 5{-10}.

Under the alternative analysis, an upward correction, wave 4{-10}, is still underway and is in its 3rd and likely final segment, wave C{-11}. Sometimes 4th waves will form a compound structure, linking two or three corrective patterns together. If that’s the case, then wave C{-11} will be followed by a connector, wave X{-11}, and then another wave A{-11}, the start of the second corrective pattern.

This is all happening within a nested series of downtrending waves. From smaller to larger, they are wave 3{-9}, which began on August 30; wave 3{-8}, on August 26; wave 1{-7}, on August 16; and wave 3{-6}, also on August 16. The entirety of the decline that began on January 4 from 4808.25 is within wave 4{-1}, the next to the last wave in a very large expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018.

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, September 6, 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