3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined during the session, peaking below the 38.2% Fibonacci retracement level. The lower the price goes, the more likely the alternate analysis becomes: The middle wave, B{-8}, within the upward correction that began October 13, wave 2{-7}, is underway.

10:55 a.m. New York time

XOM earnings play entry. I’ve entered a short bull put spread on XOM, using options that expire on November 18, and have posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell from yesterday’s high, 3897.50, to 3836.25, and thereafter traded in a narrow range.

What does it mean? The first subwave of an upward correction that began on October 13 continues and is nearing its end.

What are the alternatives? The first subwave ended at yesterday’s high and the second subwave has begun and is in its early stage.

Chart note. I’ve superimposed a Fibonacci retracement ladder on the chart, in red, to better track how much of the preceding downtrending wave proceeding the upward correction has retraced. The price has remained between the 38.2% and 50% Fibonacci retracement levels since October 25.

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

What does Elliott wave theory say? The principal and alternative analyses are identical to yesterday morning’s. Only the peak price has changed.

Under the principal analysis rising wave A{-8} is underway. It is the first subwave of an upward correction, wave 2{-7}, that began on October 13 from 3502.

Under the alternative analysis, wave A{-8} ended on October 26 at 3897.50 and declining wave B{-8} began from that price.

There’s little evidence to say which scenario, the principal or the alternative, best matches the chart. I give them equal weight.

If the price reverses and moves above 3897.50, then the principal analysis is correct — wave A{-8} is still underway. If the price continues to fall, then the alternative analysis becomes more likely.

The structure enclosing the uncertaintities described above is quite clear: Wave 2{-7}, an upward correction is underway. It is taking the form of a Zigzag, which means that its first subwave, A{-8}, has five subwaves, the B wave that follows has three subwaves and the C wave will have five.

Once those three subwaves are complete, the chart will encounter another uncertainty. Most 2nd wave corrections end with the third subwave, the final wave within the corrective pattern. Occasionally, the correction will have a compound structure, linking two or three corrective patterns. The initial stages of a wave linking two corrective patterns and of the resumption of the downtrend — wave 3{-7} — look the same, so initially an analysis saying wave 3{-7} has begun will be an ambiguous call.

Wave 2{-7} and the downtrend that will follow wave 3{-7} are subwaves of wave 3{-6}, which began on August 16, 2022. The entire structure, in turn, is occurring within a series of nested wave of increasing size, from wave 1{-5} up to wave 4{-1}, all of which began on January 4. The parent of them all is wave 5{0}, an expanding Diagonal Triangle that began 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, 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 27, 2022

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.