Trader’s Notebook

12:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to rise during the session, so far reaching 3870 on the futures, midway between the 38.2% and the 50% Fibonacci retracement levels.

No change in the analysis. I’ve updated the chart.

10:25 a.m. New York time

BA earnings play entry. I’ve entered a short bear call vertical spread on BA, using options that trade for the last time on November 18, and have posted an analysis of the trade.

9:43 a.m. New York time

Running a few minutes late. The analysis changed at the opening bell.

What’s happening now? The S&P 500 E-mini futures fell from the peak, 3822, attained late in yesterday’s session, and reached into the 3790s before rising again at the opening bell, rising above yesterday’s high — 3823.75 at the time the chart below was captured..

What does it mean? The final wave within a five-wave rise, within the first leg of an upward correction that began on October 13, is underway and nearing completion.

What are the alternatives? Of equal likelihood, any peak today marks the end of the fifth wave described above and of the first leg of the upward correction. The second, middle leg of the correction has begun its descent.

So which is it? The first leg of the upward correction has met all of the requirements of form identified in Elliott wave analysis. But within that form, the first leg can still have some distance to go before reaching its end. Before the new high this morning, I had written, “If the price reverses and moves above 3822, then the principal analysis is correct.” It did, and the principal analysis is correct. If the price were to reverse today, then the further it declines, the more likely it is that the alternative analysis is correct.

[S&P 500 E-mini futures at 3:30 p.m., 160-minute bars, with volume]

What does Elliott wave theory say? Under the principal analysis, the present location is rising wave E{-9} within rising wave A{-8} within rising wave 2{-7}. Under the alternative analysis, wave E{-9} and its parent, wave A{-8}, both ended late in yesterday’s session, and declining wave B{-8} has begun.

Wave B{-8} will have three subwaves internally and will be followed by the final wave of the corrective pattern, wave C{-8}, which will have five subwaves within it.

Once wave B{-8} begins, we’ll have a better sense of how high, at a minimum, the final wave, C{-8} of the wave 2{-7} correction might go.

The distance wave C travels depends upon wave B. Wave 2{-7} is taking the form of a Zigzag. We know this because wave A{-8} had five waves internally.

The B wave in a Zigzag must remain above the starting point of the preceding A wave — 3502 in this case. Moreover, the B wave in a Zigzag typically will retrace 38% to 79% of the A wave.

This paragraph was written before the opening bell reversal to the upside. So mentally add a point or two to the calculation result to account for the 3823.75 high set this morning. If the alternative scenario is correct and yesterday’s high, 3822, is the end of wave A, then wave A{-8} traveled 320 points. A shallow 38% retracement would bring wave B{-8} down to 3700. A more robust 79% retracement would mean wave B{-8} would end around 3569.

Wave 2{-7}, when complete, will be followed by downtrending and energetic wave 3{-7}, which will carry the price below the start of the correction, most likely significantly below that level.

All of this is happening within downtrending wave 3{-6}, which began on August 16 from 4327.50, which is enclosed by a series of increasingly larger nested 1st waves, up to wave 1{-2}, which in turn is a subwave of wave 4{-1}, which began on January 4 from 4808.25. Wave 4{-1} is the next to the last wave within an expanding Diagonal Triangle that began on December 26, 2018, from 2346.58 on the index.

Bottom line: Enjoy the upward autumn for the brief time that it lasts, because a deep downward movement lies ahead. Winter is coming.

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)
  • 2{-7} Minuscule, 10/13/2022, 3502 (up)
  • A{-8} Subminuscule, 10/13/2022, 3502 (up)

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 25, 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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