Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 fell during the day, continuing the decline from yesterday’s high, 3751.25 on the futures, into the 3620s. The second segment within the first leg of a three-leg upward correction is underway — Wave B{-11} within wave A{-10} within wave 4{-9}, which began on September 28 from 3613.

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 declined in overnight trading, pulling back from yesterday’s session high, 3726.50.

What does it mean? The strength of yesterday’s rise forced a full re-analysis of the decline that began on September 13. Under the new analysis, an upward correction began yesterday and will retrace a portion of the decline that began on September 15. Yesterday’s rise is the initial leg of the first part of a three-part correction.

See the Elliott wave theory section below for details of the re-analysis.

What are the alternatives? It’s possible to consider yesterday’s rise to have completed the first part of the upward correction. The lack of visible internal structure within that rise persuades me that the principal analysis has the stronger case.

[S&P 500 E-mini futures at 3:30 p.m., 50-minute bars, with volume]

What does Elliott wave theory say? As I noted in yesterday’s closing post, the rapid price rise, wave 2{-15}, moved above the September 27 high, wave 1{-15}, and in doing so under the old analysis it broke a rule of Elliott wave theory: A 2nd wave can’t move above the start of the preceding 1st wave. To bring analysis back in line with the reality of the chart, I’ve done a full re-analysis.

Under the new principal analysis,

  • the September 27 high is wave 4{-10} (formerly wave 4{-14}),
  • the September 28 low is the end of wave 5{-10} and its parent, wave 3{-9} (formerly the end of wave 1{-15})
  • and the subsequent rise is wave A{-11} within wave A{-10} within wave 4{-9} (formerly wave 2{-15} within wave 4{-14}.

Under the new alternative analysis, the subsequent rise is the entirety of wave A{-10}.

The difficulty posted by the decline from September 13 is the initial wave, 1{-9}, which is 236.50 points in length, easily the longest wave within the entire decline to date. A valid count must ensure that no 3rd wave is the shortest of the three waves in the direction of a trend, wave 1, 3 and 5. To meet that requirement, the decline from September 15-19 following wave 2{-9} can’t be wave 3{-9} — it’s too short. So I’ve adopted the usual solution and pushed the wave degrees down one level, making that decline wave 1{-10} within wave 3{-9}, and following through later events with that same degree structure.

In my tinkering with the count, I was also able to avoid taking the wave degrees down to a such a small level as the prior count had required. All in all, it’s a much simpler description of the fractal structure, and brings the chart labeling back in in line with Elliott wave theory, not at all a trivial matter.

The larger picture is unchanged. Everything described above is happening within wave 5{-8}, a downtrend that began on September 13 from 4175. It lies within a series of nested waves, each larger than the wave it encloses, stretching up to wave 4{-1}, which began on January 4 from 4818.62 on the index, the next-to-the-last wave of a Diagonal Triangle, uptrending wave 5{0}, that began on December 26, 2018 from 2346.58 on the index.

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)

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 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.

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