Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures declined and then rose during the session, breaking above the overnight high. The new high confirms the principal analysis from this morning: The third subwave, C{-10}, within an upward correction, wave 4{-9}, is still underway. I’ve updated the chart, leaving the upper boundary of the price channel where it was this morning, touching the overnight high, in order to illustrate the extent of the session’s breakout.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures peaked at 3808.75 two minutes after yesterday’s closing bell sounded and then began an overnight decline that so far has reached the 3760s.

What does it mean? I see two choices of equal likelihood. For the principal analysis, appearing on the chart, I’ve arbitrarily chosen a scenario where the upward correction that began on September 28 has not yet reached its end, although it’s in its final stages.

What are the alternatives? There are two.

Alternative #1: Of equal likelihood with the principal analysis is a scenario that sees the 3808.75 peak as the end of the upward correction and the subsequent decline as the first tentative steps of a resumption of the downtrend that began on September 13.

Alternative #2: Also possible, although less likely, is a scenario that sees the 3808.75 peak as the end of the first corrective pattern within a compound correction that will contain two or three corrective patterns. This analysis sees the decline from the peak as the beginning of a connecting wave, which will be followed by a second corrective pattern.

If the price rises above yesterday’s peak, then the principal analysis is correct. If the price falls, then one of the alternatives is correct. The further the price falls, the more likely it is that alternative #1 matches the chart: The upward correction ended yesterday and the downtrend has resumed.

Note that the price channel on the chart assumes, for the sake of convenience, that 3808.75 was the end of the upward correction.

[S&P 500 E-mini futures at 3:30 p.m., 70-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, the upward correction, wave 4{-9}, is still underway and is in its third and final leg, wave C{-10}.

The first alternative analysis has it that wave 4{-9} ended yesterday at 3808.75, and that price is the beginning of declining wave 5{-9}, the final wave within a larger downtrend, wave 5{-8}, that began on September 13 from 4175. This scenario matches the price channel on the chart. The channel’s upper boundary connects the starting points of waves 3 and 5, and we don’t yet know the starting point of wave 5, not as a certainty.

The second alternative sees the decline from the peak as wave X{-10}, a wave connecting the corrective pattern that ended yesterday with a future second pattern within a compound correction.

In any of the three possibilities presently on the table, wave 5{-9} will eventually begin, if it hasn’t already, and will carry the price down toward or below 3500.

But what happens next? The end of wave 5{-9} is also the end of wave 5{-8}, which began on September 13, and of its parent, wave 1{-7}, which began on August 16 from 4325.28. The fractal nature of a market chart means that any trend contains smaller trends and counter trends. Wave 1{-7} is the first wave within a larger downtrend, wave 3{-6}, which also began on August 16 from 4325.28. The wave that follows, wave 2{-7}, will be an upward correction that will take back a portion of the entire decline from 4325.38 to 3500 or wherever wave 5{-9} ends. It will be followed by downtrending wave 3{-7}, a powerful decline that will carry the price still lower, beyond the end of wave 5{-9}.

And so it goes, waves within waves, all the way the up the present set of downtrending waves to the largest of them all, wave 4{-1}, which began on January 4, 2022 from 4818.62.

Wave 4{-1} is the next-to-the-last wave within an expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018 from 2346.58 on the index. Prices will remain below wave 4{-1}’s starting point, 4818.62, until the wave is complete. Afterward, wave 5{-1} will likely carry the price to heights, above that wave 4{-1} beginning.

Until then markets will be downtrending, but with a lot of bullish opportunities in the mix as the price works its way downward. The thing to remember in interpreting the chart within wave 4{-1} is this: Waves 1, 3 and 5, bearish, and waves 2 and 4, bullish.

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 5, 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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