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 just above 3800 and confirming the principal analysis from this morning.

I’ve updated the chart, including an adjustment to the price channel that places the upper boundary on today’s new high, with the understanding that this high may be just a stopping point before the price increases further.

The upper limit for a 4th wave is the end of the preceding 1st wave, which wave 1{-9), ending at 3938.50. If wave C{-10} should carry its parent, wave 4{-9}, above that level, then the analysis no longer matches the chart and will cry out for revision.

I’ve updated the chart, below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise in overnight trading, reaching into the 3760s.

What does it mean? An upward correction that began on September 28 is still underway and is in its final leg. It has exceeded the price target that would be typical of a formation of its type, 3660.25 to 3733 in this case. The correction, when complete, will be followed by a resumption of the downtrend that began on September 13 from 4175, a move that likely will carry the price into the low 3500s and perhaps lower still.

I’ve placed a tentative price channel on the chart below, in red, that assumes the upward correction has ended at the overnight high. That’s probably not the case, but nonetheless, the channel gives some idea of how far the resumed downtrend is likely to fall.

What are the alternatives? The present task is to identify an endpoint of the the upward correction. There are several possibilities.

Alternative #1: The present high is the end of the upward correction. This scenario will be tentatively confirmed if the price reverses to the downside, the first leg of the resumed downtrend. (The price channel assumes this scenario, but the chart labeling reflects the principal analysis: The correction has further to go.)

Alternative #2: The correction takes a compound form, linking together two or three corrective patterns. This scenario will also be tentatively confirmed if the price reverses to the downside, except in this case, the decline will be a connector wave, linking the first corrective pattern with a second one to come.

The lower the price goes, the more likely alternative #1 is. A reversal upward from the low or mid-3600s suggests that alternative #2 is more likely.

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

What does Elliott wave theory say? The price channel now in place has an upper boundary linking the end of wave 2{-9} and the presumed (uncertain) end of wave 4{-9}, with a lower boundary passing through the end of wave 3{-9}.

The present upward correction, wave 4{-9}, is internally in late stage of wave C{-10}. This is a change from yesterday’s labeling, which placed the present rise as wave C{-11} within wave A{-10}, the first leg of the parent wave 4{-9}. The price channel suggested to me that raising the {-11} degree to {-10} better matched the reality on the chart.

The C wave in a three-wave correction must have five waves internally, and wave C{-10} has met that requirement.

Fourth waves tend to end within the range of the 4th wave within the preceding 3rd wave. Wave 4{-10} within wave 3{-9} ranged from 3660.25 to 3733. Wave 4{-9} has already exceeded that range, have reached a high of 3761.50.

Wave 4{-9}, when complete, will be followed by a resumption of its parent, wave 5{-8}, which began on September 13 from 4175. The price channel’s lower boundary gives an indication of how far wave 5{-9} might fall before reaching its end. Presently, the lower boundary is at 3571.75, and it moves lower every minute of every day. If the present wave 4{-9} peak is indeed the end, and if it takes wave 5{-9} four trading days to reach its completion, then the price target would be around 3500.

But 5th waves are inconsistent beasts. Sometimes they fall short of the price channel boundary, a condition called “truncation” in Elliott wave parlance, and sometimes they move far past the target, a condition called “extension”.

Under the principal analysis, wave C{-10} has not yet reached its end, and the upper boundary of the price channel will require adjustment for each new peak.

Under the first alternative, the present peak is the end of wave C{-10} and wave 5{-9} has already begun. If that’s the case, then the price channel stands as it is now.

Under the second alternative, the present peak, or a future peak, marks the end of the first corrective pattern within wave 4{-9} and willing followed by downward wave X{-10}, connecting the first pattern with a second one, in a compound correction that can take a wide variety of forms. Only after the compound correction is over will wave 5{-9} begin.

Wave 5{-8} is the smallest of a series of nested downtrending waves, reaching up seven degrees to wave 4{-1}, which began on January 4 from 4818.62 on the index.

Its parent is wave 5{0}, an expanding Diagonal Triangle that began on December 26, 2018 from 2346.58 on the index. Wave 4{-1} within wave 5{0} will be followed by wave 5{-1}, a large uptrend that will most likely carry the price to new highs, above the low 4800s. The end of wave 5{-1} will also complete wave 5{0} and a series of larger waves, up to wave 5{+3}, which began in 1932. A decades-long downward correction will follow. (See the We Are Here section below for a list of current waves from 5{-8} up to 5{+3}.)

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, October 4, 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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