Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures remained above the overnight low, 3914, trading narrowly between the 3950s and the 3930s during the session.

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 slightly overnight and then fell further, to 3914.

What does it mean? A downtrend that began on December 1 is now taking its early steps and will carry the price into the 3400s and likely much lower.

What are the alternatives? There are two:

  • Alternative #1: The upward correction is still in the third and final wave of its corrective pattern and the price will soon reverse, rising above the December 1 high, 4110.
  • Alternative #2: The upward correction is forming a compound structure, containing two or three corrective patterns, and the present decline is a wave connecting the first corrective pattern with a second one.

Chart note. Today’s chart looks at the entire downtrend that began on March 29. That downtrend is wave 1{-5}, and the chart shows that the S&P 500 is presently in the 3rd subwave, wave 3{-6}.

R.N. Elliot used the term “wave” for a directional market movement. He numbered waves within a trend, and used letters to designate counter-trend corrections. Waves form a hierarchy of smaller waves within larger ones, and I use subscripts, in curly brackets, after the wave labels to show where the waves fit in the hierarchy, a position called a wave’s “degree” by Elliott.

[S&P 500 E-mini futures at 3:30 p.m., 8-hour bars, with volume]

What does Elliott wave theory say? These are the waves in play at his point.

  • The downward correction is wave 3{-7}, the middle wave of a downtrend that began on August 16, wave 3{-6}. It follows an upward correction, wave 2[-7}.
  • Internally, wave 3{-7} is in its first wave, 1{-8}.

The rising wave that follows, wave 2{-8}, can be expected to take back much of the 1st wave decline, creating hope that the downtrend has ended. Then downtrending wave 3{-8} will begin. A downtrend within a larger downtrend within a still larger downtrend, all of them 3rd waves, wave 3{-8}will dash all hopes of a quick recovery.

How long will the downtrend last? Wave 1{-7} began on August 16 and lasted 109 days. Wave 3{-7} can be expected to last longer, since 3rd waves cover more territory than 1st waves do.

  • If wave 3{-7} takes the same amount of time as wave 1{-7}, then it would end in March 2023.
  • If it takes twice as long, then it would end in July 2023.
  • If it takes three times as long, then we’re looking at October 2023 as the end of wave 3{-7}.

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)
  • 3{-7} Minuscule, 12/1/2022, 4110 (down)
  • 1{-8} Subminuscule, 12/1/2022, 4110 (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, December 7, 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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