Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 drifted downward during the day, with the futures reaching down into the 3870s. This morning’s analysis remains unchanged. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reach 3924.25 late in Friday’s session and then retreated slightly, remaining below that price after trading resumed overnight.

What does it mean? Friday’s high was slightly more than a 50% retracement of the decline that began on August 16 from 4327.50. A 50% retracement is a Fibonacci level, a point where prices tend to pause or change directions. It’s possible that Friday’s high marks the end of the first leg of an upward correction that began on October 13 from 3502.

But it’s not a certainty, and so we’re back to where we were much of last week; If the price rises to a new high, then the first leg of the upward correction is still underway …

What are the alternatives? … but if the price declines further, it remains possible that 3924.25 was the end of the correction’s first leg and the beginning of the second leg. The further the price falls, the more likely the alternative scenario is.

Chart note: I’ve superimposed the Fibonacci ladder on the chart, in red. Friday’s high pierced the 50% Fib level, and overnight trading remained in that level’s neighborhood. The next major Fibonacci retracement level is 71.6%, at around 4150.

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

What does Elliott wave theory say? Under the principal analysis, wave A{-8}, the initial wave within an upward correction, wave 2{-7}, is still underway and will push ahead to new heights. When wave A{-8} is complete, it will be followed by wave B{-8}, the declining middle wave of the upward corrective pattern.

Under the principal analysis, wave A{-8} is still underway. Under the alternative analysis, wave A{-8} ended at Friday’s high, and wave B{-8} began and is in its early stages.

Whenever it begins, wave B{-8} will have three waves internally, and it will remain above the starting point of the upward correction, 3502.

The final wave of the corrective pattern will be wave C{-8}, with five subwaves. It will most likely rise above the end of the preceding A wave.

The end of wave C{-8} will most likely be the end of the upward correction, although it is possible that wave 2{-7} will form a compound structure, linking two or three corrective patterns together.

Wave 2{-7} will be followed by a powerful decline, wave 3{-7}, which will carry the price significantly lower.

This is all happening within wave 3{-6}, itself a powerful declining wave, which began on August 16. Wave 3{-6} is enclosed by a nested series of 1st waves of increasing size, from wave 1{-5} to wave 1{-2}, four degrees larger. Those 1st waves all began on January 4, the start of the slow crash that has defined the markets this year.

Enclosing them all is wave 4{-1}, which also began on January 4. It is the next-to-the-last wave within an expanding Diagonal Triangle, wave 5{0}, which began on December 26, 2018.

The long-term analysis tells me to treat upward movements with caution, as short-term moments of cheer within a steady, dismal, dreary decline.

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)
  • B{-8} Subminuscule, 10/16/2022, 3897.50 (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 31, 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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