Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures hit a low of 3941.25 during the session and then rose back into the 3960s before reversing back to the downside. No change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight into the 3990s and then retreated to the 3960s.

  • The high point of the rise that began last month remains an elusive goal.

What does it mean? That rise is an upward correction that began on October 13. It is in the last leg of a corrective pattern, and that last leg is in its next-to-the-last segment.

  • The rise is playing its endgame and a powerful decline is approaching.

What are the alternatives? Just possibly, that decline has already begun, on November 15 from the high point of the correction, 4050.75.

Chart notes. The 4050.75 level matters because it was a brief piercing of the 61.8% Fibonacci retracement level, a point where corrections reach their end. The Fibonacci retracement levels are shown on the chart in red.

  • A rise above the 61.8% retracement — 4012 — means that the last leg of the correction is in its final subwave.
  • A decline below the 50% retracement — 3915 — means that the correction has ended and the downtrend has begun.

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

What does Elliott wave theory say? Three waves are driving the action.

  • The upward correction is wave 2{-7}. It began on October 13 from 3502. It is the first of two corrections within wave 3{-6}, which began its downtrend on August 16 from 4327.50
  • The last leg of the correction is wave C{-8}. The chart shows it as still being on its upward journey, but it could have ended on November 15 at 4050.75.
  • Wave C{-8} will have five subwaves, and it now on the fourth subwave. Wave D{-9} is dropping, setting the stage for a an upward drive that will almost certainly break through the 4050.75 level.

What could change that scenario?

  • Compounding. Sometimes a correction adds additional corrective patterns. If that happens, then wave C{-8} will be followed by a connecting wave X{-8}, and then by the start of a second corrective pattern, wave A{-8}.
  • A compound correction can contain up to three corrective patterns.
  • But compounding is rare in a wave 2, the first correction inside of a trend. It’s more common in a wave 4, the second correction running against the trend.

Is compounding really that important? Ultimately, no. It will delay the end of the correction and so put off the start of more decline.

  • But compounded or not, as sure as night follows day, the wave 2 correction will be followed by wave 3, a powerful decline that will carry the price below 3502, almost certainly a great distance below that level.

More downside to come.

The downtrend that began on August 16 — wave 3{-6} — isn’t the end of the bear market. A wave is always a part of a larger wave, a child who has ancestors. And wave 3{-6} has a parent wave, a grandparent wave, and a bunch of greats. They’re all a crotchety bunch, looking to the downside.

  • The ancestors are all first waves, meaning each will end up with three downtrending waves and two upward corrections.
  • The downtrending ancestors go up to great-great-grandparent, wave 1{-2}, which began on January 4 from 4818.62 on the index.

After darkness comes the dawn.

No downtrend lasts forever. Will the downtrend that began on January 4 end this year? Never. Next year? Maybe. 2024? Seems likely.

  • Everything we see on the chart is part of wave 4{-1}, a declining next-to-the-last subwave of a five-wave expanding Diagonal Triangle that began on December 26, 2018.
  • When that 4th subwave is complete, a 5th and final subwave will kick off, a large uptrend that will eventually carry the price above the January 4 high, and almost certainly quite a bit higher than that level.
  • The triangle is wave 5{0}, the final wave within a large uptrend that began in 2009, during the Great Recession.

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 29, 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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