Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose during the session, from an overnight low of 4006.75 on the futures back into the 4080s. The price remains below the December 1 high, 4110.

  • The higher the price rises, the more likely it is that the upward correction that began on October 13 is still underway.
  • A reversal downward that brought the price below 4006.75 would strengthen the case that the correction ended on December 1 and a powerful downtrend has begun.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply when the employment situation report was released an hour before the opening bell, covering 60 points in a single minute. The report said employers added 263,000 jobs in November, suggesting continuing strong demand for workers and therefore an ongoing risk of inflation.

What does it mean. The price remains above the lower boundary of the price channel set by the last leg of the correction, which began November 10. Until the price pierces that lower boundary, then a strong case can be made that the decline from the December 1 high is a pullback within the correction, which can be expected to reach new heights.

Is there an alternative? However, the rapidity of the decline strengthened the case that the December 1 high, 4110, was the end of the upward correction that had been underway since mid-October, and the beginning of a downtrend that will carry the price a significant distance lower, perhaps in to the 3200s.

Chart notes. After declining sharply, the price halted near 4012, which is the 61.8% Fibonacci retracement level, a point where price movements tend to encounter resistance. The lower boundary of the price channel is presently in the 3970s.

When working out his analytical system in the 1930s, R.N. Elliott used the term “waves” for market movements in a single direction. Under his system, each wave is built from still smaller waves and is itself a building block for a larger wave. The size of a wave relative to others is called its “degree”. On the chart, I label each waves with a number (for trending waves) or a letter (for correction waves), and add in a subscript number in curly brackets to show the degree.

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

What does Elliott wave theory say? If the upward correction is still underway, then these are the waves that matter.

  • The upward correction is wave 2{-7}. It began on October 13.
  • The correction contains three waves. The last of those waves, C{-8}, is underway.
  • The correction has taken the form of a Zigzag, which means that wave C{-8} contains five waves. It is presently in its next-to-the-last wave, 4{-10}.

If the correction ended at the December 1 peak, then that level, 4110, was the end of wave 2{-7} and a powerful downtrend has begun.

  • Wave 1{-8} is underway, the first of five waves within wave 3{-7}.
  • Downtrending wave 3{-7} will carry the price significantly below the start of the correction, at 3502. A possible price target for the downtrend suggests the price will reach into the 3200s.

The correction and that downtrend that follows are subwaves of a larger downtrend, wave 3{-6}, which began on August 16 from 4327.50 and which is in turn a subwave of wave 1{-5}, which began on January 4 from 4808.25.

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, December 2, 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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