Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to rise during the session and as the closing bell approached, was nearing the 61.8% Fibonacci retracement level, at 4012. The Fibonacci levels are shown in red on the chart.

The last leg of an upward correction that began on October 13 continues. The present wave inventory is either downward wave D{-9} or alternatively, upward wave E{-9}, within upward wave C{-8} within upward correction 2{-7}.

I’ve updated the chart.

10:30 a.m. New York time

DELL earnings play exit. I’ve exited my short bear call earnings spread on DELL for 49.2% of maximum potential loss and have updated the trade analysis with full results. The company did better than analysts had expected.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose slightly in overnight trading, from the 3940s to the 3980s.

What does it mean? The upward correction that began on October 13 continues and is now in its final leg. When the correction is complete, it will be followed by a powerful decline that will reach below 3502 — the beginning of the correction — and almost certainly significantly below that level.

What are the alternatives? The correction may have ended on November 15 at 4050.75. This seems less likely to me because the correction has taken the form of a Zigzag, meaning that the final leg will have five waves internally. I see three completed legs on the chart and a fourth wave in progress, but no fifth wave of comparable magnitude.

[S&P 500 E-mini futures at 3:30 p.m., 4-hour bars, with volume]

What does Elliott wave theory say? Wave 2{-7}, the upward correction, is still underway and is in wave C{-8}, the last leg of a three-wave Zigzag. Within C{-8}, declining wave D{-9} is underway. It will be followed by rising wave E{-9}, which will complete wave C{-8} and most likely wave 2{-7}.

It sometimes happens that a correction will form a compound structure, linking together two or three corrective patterns. If that’s the case, then wave C{-8} will be followed by a downward correction wave, X{-8}, and then buy a second corrective pattern, delaying the end of the parent wave 2{-7}.

Whenever wave 2{-7} ends, it will be followed by wave 3{-7}. Third waves are usually the longest of the three waves in the direction of a trend — a downtrend in this case — and tend to show a dramatic amount of energy in their falls.

Looking further ahead, wave 3{-7} will be followed by a 4th wave correction and then a downtrending 5th wave, which will complete the parent wave of all of this action: Wave 3{-6}, which began August 16 from 4327.50. A 4th wave correction and a downtrending 5th wave will follow, completing wave 3{6} and beginning a larger 4th wave upward correction, followed by a larger 5th wave decline.

Wave 3{-6} and waves of the same degree that follow are subwaves of downtrending wave 1{-5}, which began on January 4. It is the smallest of a series of nested 1st waves of increasing size, up to wave 4{-1}, a downtrending wave within an expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018.

Wave 4{-1} will be followed by uptrending wave 5[-1}, the final leg in the Triangle, which will carry the price above the January 4 high, 4818.62 on the index.

When the Triangle is complete, the price will work its way down to levels not seen for many generations.

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 22, 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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