Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined during the day, with a gentleness appropriate for a major holiday week in the United States. This morning’s analysis is unchanged. Wave 2{-7} continues to work through its last internal wave, C{-8}. I’ve updated the upper chart.

1:20 p.m. New York time

DELL earnings play entry. I have entered a bear call spread on DELL, using options that expire on December 16, 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 declined slightly after trading resumed overnight, remaining between last week’s high and low: 4050.75 and 3912.50.

What does it mean? An upward correction that began on October 13 from 3502 is in its last stages. The present decline is the next-to-the-last movement within the final wave of the correction. It will be followed by an upward movement that will complete the corrective pattern and most likely will mark the end of the correction as well, unless the correction takes a compound form, containing two or three corrective patterns.

So far the upward correction has peeked above the 61.8% Fibonacci retracement level and since then has traded between the 61.8% and 50% Fibonacci levels. The Fibonacci levels are marked on the upper chart in red.

What are the alternatives? Most corrections contain only one corrective pattern. However, a few form a compound structure, with additional corrective patterns.

In either case. When the upward correction is complete, it will be followed by a powerful downtrend that will carry the price below 3502, almost certainly into the 3400s, and perhaps even lower.

Charts. The upper chart shows the S&P 500 E-mini futures from mid-August to the present. The lower chart shows the S&P 500 index from November 2007 to the present, including an expanding Diagonal Triangle discussed in the Elliott wave analysis section, below.

[S&P 500 E-mini futures at 3:30 p.m., 230-minute bars, with volume]

What does Elliott wave theory say? The upward correction is wave 2{-7}, a Zigzag pattern with three waves. The third wave, rising wave C{-8}, is now underway. The last wave in a Zigzag has five subwaves, and the present wave is now in its 4th wave, declining wave D{-9}, which will be followed by a final, rising wave E{-9}, which will most likely exceed the correction’s most recent high, 4050.75 attained on November 15.

The end of wave E{9} will also be the end of waves C{-8} and 2{-7}, the correction in its entirety. The decline that follows will be wave 3{-7}, and from it we can expect all of the energy and power that are characteristic of 3rd waves in a trend.

Looking further ahead, wave 3{-7} will be followed by another upward correction, wave 4{-7}, and then by downtrending wave 5{-7}, which will complete the parent wave 3{-6}, which began on August 16. A 5th wave generally moves beyond the end of the preceding 3rd wave in the series, but sometimes comes up short, an action known as a truncation. And sometimes it can extend, creating an unnaturally long 5th wave. So 5th waves can do the unexpected. They are much like the porridge in “Goldilocks and the Three Bears”: Too hot, too cold, or just right.

The parent wave 3{-6} is contained within a series of downtrending 1st waves, each larger than the one it contains. The size stretches up four levels, to downtrending wave 1{-2}, which is contained within downtrending wave 4{-1}, which began on January 4, 2022.

Wave 4{-1} is the next-to-the-last wave within wave 5{-0}, an expanding Diagonal Triangle that began on December 26, 2018 and will be followed by uptrending wave 5{1}, which will most likely carry the price above the January 4 peak — 4818.62 on the index — unless it is truncated. And like all 5th waves it can be extended, rising far more than expected. All of this will almost certainly carry us through 2023 and perhaps further.

The end of wave 5{-0} will kick off a market decline of world-historical importance. For wave 5{-0} is nested within a series of 5th waves, each larger than the wave it contains, stretching up, at the least, to wave 5{+3}, an uptrending wave that began on July 8, 1932, the date the marks the end of the 1929 crash, which triggered the Great Depression.

The end of wave 5{0} will simultaneously trigger the end of all of those larger 5th waves. The downtrend that follows will probably take decades to complete, although it’s possible that the new crash could be far swifter. As in any downtrend, there will be upward corrections that will provide trading opportunities, but the overall direction of the markets will be down.

[S&P 500 index at 9:35 a.m., 3-day bars, with volume]

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)
  • C{-8} Subminuscule, 11/3/2022, 3704.25 (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, November 21, 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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