Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has remained below yesterday’s closing high during the session, rising to touch the upper price channel and then retreating to a slightly lower level than before.

The lower the price drops, the more likely this morning’s alternative #1 scenario becomes: The upward correction ended at yesterday’s high of 3820 on the futures. For now, I’m leaving the analysis unchanged from the morning’s principal scenario: The upward correction of the last few days is still underway.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight from yesterdays high of 3820, and then rose again, remaining below that peak.

What does it mean? Different day, same song. The final leg of the upward correction that began on September 28 is still underway, although it is nearing completion. The subsequent decline and rise are movements of smaller scale within that final portion of the correction.

What are the alternatives? Or, equally likely — alternative #1 — the upward correction ended at yesterday’s peak, and the subsequent decline and rise are the first steps in a resumption of the downtrend that began on September 13.

Or, less likely — alternative #2 — the upward correction is taking a compound form, made up of two or three corrective patterns. The overnight decline and rise are movements within a downward movement that will connect the first corrective pattern, now complete, with a second correction pattern, which has not yet begun.

I’ve labeled the chart according to the principal analysis. The price channel, in red, has been set as though yesterday’s high was in fact the end of the correction. I think of it as a hypothetical price channel, since the real channel, which sets a lower target once the downtrend resumes, will need wait for the end of the correction.

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

What does Elliott wave theory say? Wave C{-10}, the final wave within wave 4{-9}, an upward correction that began on September 28 from 3613, is still underway. It set a high yesterday of 3820, and then pulled back slightly in a movement of lower degree within wave C{-10}. Wave 4{-9}, when complete, will be followed by wave 5{-9}, the final wave in a downtrend, wave 5{-8}, that began on September 13 from 4175.

A 4th wave cannot move beyond the end of the preceding 1st wave, setting an upward limit on wave 4{-9} of 3938.20, about 118 points above yesterday’s high. If the 5th wave that will follow wave 4{-9} adheres to the hypothetical price channel, which assumes that yesterday’s high was the end of the upward correction, then wave 5{-9} will come close to 3500 and will perhaps reach below it..

Under the 1st alternative analysis, wave 4{-9} ended at yesterday’s high and wave 5{-9} is underway.

Under the 2nd alternative analysis, wave 4{-9} is forming a compound correction, yesterday’s high was the end of the first corrective pattern, and the subsequent decline is wave X{-10}, connecting the first pattern with a second corrective pattern to come.

The parent wave of all of this Sturm und Drang, wave 5{-8}, is the final wave within wave 1{-7}, a downtrend that began on August 16 from 4325.28. Both the parent and the subwave will end simultaneously and wave 2{-7} will begin, an upward correction two degrees higher in size than our present concern, wave 4{-9}.

Wave 2{-7} will provide bulls some respite from the major bear trend that began on January 4 from 4818.62 on the index. That bear trend is wave 4{-1}, the penultimate wave within wave 5{0}, an expanding Diagonal Triangle that began on on December 26, 2018.

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 6, 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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