Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has fallen continually during the session, reaching into the 3630s on the futures. Downtrending wave 5{-9} continues. This morning’s analysis remains unchanged. I’ve updated the chart.

2:35 p.m. New York time

Bond market holiday on Monday. U.S. bond markets will be closed on Monday for a holiday, Indigenous People’s Day or Columbus Day, depending upon the state. The stock exchanges will be open. (This corrects an earlier post that said stock markets would be closed.)

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply before the opening bell, moments after a data release showing that the economy added 263,000 jobs in September.

What does it mean? The decline was sufficient to resolve the question that has dominated this analysis over the last few days: Has the upward correction that began on September 28 ended yet? And the answer is “Yes”. It ended on October 5, having reached 3820. The decline from that level had a reached a low so far of 3700.25 as the opening bell sounded.

The decline is the resumption of a larger downtrend that began on September 13 from 4175. I’ve placed a price channel on the chart showing a target of around 3500 for the present decline. As always in the ambiguous world of market charts, the price could wildly exceed that target, or it could come up short.

What are the alternatives? There are two.

Alternative #1: If the price reverses quickly and exceeds 3820, then the third leg of the upward correction is still underway and the resumption of the downtrend lies in the future.

Alternative #2: The three-wave corrective pattern that began on September 28 ended at the October 5 peak, and the upward correction is taking a compound form. The subsequent decline will connect the first corrective pattern with a second pattern that is yet to come, and even with a third pattern. After the compound correction is complete, the downtrend will resume.

[S&P 500 E-mini futures at 3:30 p.m., 75-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, the downtrend now underway is wave 5{-9}, whose parent, wave 5{-8}, began on September 13. The preceding upward correction, wave 4{-9}, ended on October 5.

The price channel for wave 5{-8}, shown on the chart in red, connects the starting points of declining wave 3{-9} and 5{-9} as its upper boundary, with a lower boundary formed by a parallel line intersecting the end point of wave 3{-9}. Wave 5{-8} is downtrending, and so the lower boundary is a moving target for wave 5{-9}; the longer it takes the wave to reach the lower boundary, the lower that boundary has sunk.

Also, 5th waves, famously, are fickle creatures. Sometimes they hit the lower boundary precisely or nearly so, sometimes they are truncated and end before reaching the boundary, and sometimes they are extended and move far beyond the boundary.

Wave 5{-9} is the final wave within wave 5{-8} and one degree higher, within wave 1{-7}. So the end of wave 5{-9} will also be the end of waves 5{-8} and 1{-7}. Wave 2{-7}, a larger upward correction than the one ended this week, will ensue.

Second waves never move beyond the starting point of the preceding 1st wave, so the absolute cap for wave 2{-7} is 4327.50, attained on August 16. A typical retracement is one of the major Fibonacci levels, perhaps a 50% retracement, a bit shy of 4337, or a 61.8% retracement, back to 3900 or a bit higher, both assuming a low of 3500.

There are a lot of assumptions in those guesses, and they are not information that I would use for trading at this early stage. Nonetheless, they give an idea of the possible magnitude of wave 2{-7}; it wouldn’t be unusual for the price, in wave 2{-7}, to return to levels above the October 5 peak of wave 4{-9}.

Under alternative analysis #1, wave 4{-9} is still underway and the overnight decline is a subwave within wave C{-10} of the the rising correction.

Under alternative analysis #2, wave 4{-9} is taking a compound form. The first corrective pattern ended with wave C{-10} on October 5 and the subsequent decline is wave X{-10}, which will connect the first corrective pattern to a second corrective pattern.

All of this is happening within a far larger downtrend, wave 4{-1}, which began on January 4 from 4818.62 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, 4327.50 (down)
  • 1{-7} Minuscule, 8/16/2022, 4327.50 (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 7, 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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