Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued trading in a narrow range. The pattern fits that described in this morning’s principal analysis: The first wave of an upward correction that began on September 23 is underway and has completed its rising first leg and perhaps its declining second leg, all part of a correction with three segments.

In Elliott wave terminology, from small to larger, wave A{-15} within the upward correction, wave 4{-14}, ended at the overnight high with five waves internally. That suggests that the correction is taking the form of a Zigzag. Wave B{-15} will have three internal waves, and the final segment, wave C{-15}, will have five internal waves and will likely end the correction, unless it forms a compound structure. The correction is part of downtrending wave 3{-13}, which began on September 21, the middle wave with downtrending wave 5{-12}, which began on September 20.

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 remained within a narrow range after trading resumed Sunday evening, between a high of 3718.25 and a low of 3671.50.

What does it mean? A smaller upward correction within a downtrend that began on September 22 is underway, and the decline will resume shortly, one the correction is complete.

What is the alternative? The overnight peak might well have ended the correction’s third and final wave, and if that’s how the chart plays out, then the downtrend has resumed and is in its 5th and final wave.

[S&P 500 E-mini futures at 3:30 p.m., 40-minute bars, with volume]

What does Elliott wave theory say? The downtrend is wave 5{-13}, which began on September 22 from 3833. The internal correction, now underway according to the principal analysis, is wave 4{-14}. According to the alternative analysis, upward wave 4{-14} is complete and downtrending wave 5{-14} within its parent, downtrending wave 5{-13}, has begun.

The correction has clearly completed three waves internally, and the difference between the principal analysis and the alternative is where we place those three waves in the fractal hierarchy of the chart. The principal analysis treats those three waves as waves A{-16}, B{-16} and C{-16} — subwaves of wave A{-15}, the first wave within wave 4{-14}. The alternative analysis treats those three waves as being one degree higher, at degree {-15}. So in the principal analysis, the three waves completed the first wave of the correction. In the alternative, they completed the whole correction.

If the price falls below 3660.25 and continues to fall, it strengthens the case for the alternative analysis. If the price reverses and rises toward 3766.75, it strengthens the case for the principal analysis.

And, in fact, the price has risen from the low, into the 3700 region, buttressing the principal analysis.

This is all happening within a nested series of downtrending waves, ranging from wave 5{-12}, which began on September 20, up to wave 4{-1}, which began on January 4 and is the next-to-the-last wave within wave 5{0}, a Diagonal Triangle that began on December 26, 2018.

The end of wave 5{-13} will also be the end of waves 5{-12} and 5{-11}, and of the parent wave, 3{-10}, which began on September 13. Wave 3{-10} will be followed by an upward correction that is larger than the one presently underway.

Big picture: Wave 4{-1} is still in its early stage, in wave 1{-2} one degree lower. When wave 4{-1} is complete, wave 5{-1} will carry the price to the upper boundary of the expanding Diagonal Triangle, which is now in the upper 5000s and will soon enter the 6000s. When wave 5{-1} is complete, it will trigger completion of wave 5{0} and also of a nested series of waves of increasing size, up to uptrending wave 5{+3}, which began on July 8, 1932. A downward correction of astounding size will follow, correcting nearly a century’s worth of market gains. But that’s year’s in the future and not of immediate concern.

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)
  • 3{-6} Submicro, 8/16/2022, 4325.28 (down)
  • 1{-7} Minuscule, 8/16/2022, 4325.28 (down)
  • 5{-8} Subminuscule, 9/13/2022, 4175 (down)
  • 1{-9} (no name), 9/13/2022, 4175 (down)
  • 3{-10} (no name), 9/13/2022, 4051.25 (down)
  • 5{-11} (no name), 9/15/2022, 3977.50 (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, September 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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