Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to rise during the session, reaching 4075.50 on the futures. No change in the 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 rise overnight, reaching 4045 as the opening bell approached.

What does it mean? The third leg of the upward correction that began on September 1 continues. Once the rise is complete, the correction will also be complete. It will be followed by a downtrend that will carry the price down into the 3800s or below.

What are the alternatives? There are two points of ambiguity.

Alternative #1: At this point we’re fishing for a top. Each new high is potentially the end of the correction.

Alternative #2: Typically a correction will contain one corrective pattern, but sometimes there will be two or three patterns, tied together with connecting waves in a compound correction. If the present correction takes the compound form, then the present rise will be followed by a connecting wave and then a second corrective pattern.

[S&P 500 E-mini futures at 3:30 p.m., 55-minute bars, with volume]

What does Elliott wave theory say? The upward correction, wave 4{-10} is now in its third wave, C{-11], which typically will be the end of the correction, which will be followed by wave 5{-10}, a resumption o the downtrend.

Under the first alternative, wave 4{-10} ended at the most recent high.

Under the second alternative, wave 4{-10} is taking a compound form, and when wave C{-11} is complete, it will be followed by a connecting wave, X{-11}, and then the first wave of a second corrective pattern within wave 4{-10}. Fourth waves are more likely to be compound corrections than are their 2nd-wave counterparts.

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 9, 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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