Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to work higher during the session, reaching a high of 3866.50 as the closing bell approached. 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 continued to fall after Monday’s closing bell, reaching a low of 3803.50 before reversing, rising back into the 3840s overnight.

What does it mean? A downtrend that began December 13 continues its initial fall in the first of five segments that will carry the price well below 3502, the October 13 starting point of the upward correction that came before.

What are the alternatives? There are two, both dependent on the upward correction still being underway.

  • The final segment of the upward correction is still underway. The decline from December 13 is so far shallow enough that the price remains within the range of that final segment so far. Under this scenario, the end of the correction will be followed by a significant downtrend.
  • The upward correction is still underway and is forming a compound structure, containing two or three corrective patterns. The first corrective pattern ended on December 13, and the downward movement that has followed is a connector, linking the first corrective pattern, now complete, with a second corrective pattern that has not yet begun.

Chart note. I’ve brought the chart in closer so that it encompasses the upward correction and the decline that followed, Of particular importance is the October 13 starting point of the upward correction, 3502. If the price moves below that level, then the two alternative analyses described above are no longer viable. It would serve as a confirmation that the downtrend began on December 13.

The developer of Elliott wave analysis in the 1930s, R.N. Elliott, called a directional movement a “wave”. Some non-Elliott synonyms are a “leg” or a “segment”. Waves are nested, smaller waves within larger waves, which in turn are nested within still larger waves. The structure always makes me think of the Russian Matryoshka dolls

Just as the dolls all resemble each other, whatever their relative size, so Elliott waves show the same patterns and follow the same rules, whether a wave is a decades-long behemoth or a minutes-long day-trading chart.

On the chart I follow Elliott in numbering subwaves of impulse waves, in the direction of the trend, and using letters for the subwaves of corrections, running counter the trend. I distinguish the relative size of a wave — its “degree”, in Elliott’s terminology — with a subscript contained within curly brackets.

[S&P 500 E-mini futures at 3:30 p.m., 150-minute bars, with volume]

What does Elliott wave theory say? These are the waves I’m watching closely.

The principal analysis.

  • The downtrend that began on December 13 is wave 3{-7}.
  • One degree down, wave 3{-7} is in its initial segment, wave 1{-8}.

Alternative #1.

  • Wave 2{-7} began on October 13 and is still underway.
  • The December 13 peak marked the end of a subwave within wave C{-8}, the third wave within the upward correction.

Alternative #2.

  • The December 13 peak was the end of wave C{-8}, the final wave within the first corrective pattern in wave 2{-7}, which is taking a compound form.
  • The decline from December 13 is a connector, wave X{-8}. It links completed wave C{-8}, the last wave within the first corrective pattern, with wave A{-8}, the future first wave within the second corrective pattern.

Under both alternatives, the end of the upward correction, wave 2{-7}, will be followed by a significant downtrend, wave 3{-7}.

All of this is happening within wave 3{-6}, a larger downtrend that began on August 16.

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 20, 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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