Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures shot above the upper boundary of the Horizontal Triangle that began on December 19, 2022, fulfilling all of the structural requirements of that pattern and possibly completing the upward correction that began on that date.

Endpoints are often ambiguous in Elliott wave analysis. It is always possible for a directional movement to have a bit more push in it before reaching the end. I’ve marked the chart as though the rise, wave 2{-9}, were over and a downtrend, wave 3{-9} had begun, but I may have to take it back when trading resumes on Monday.

The alternatives;

  • Wave E{-10}, the final segment within the upward correction, wave 2{-9}, may have completed only it’s first subwave and may have another decline and then a final rise to complete before reaching its end. Given the price channel boundary overshoot, it doesn’t seem to be the most likely interpretation..
  • It’s not unusual for a final wave to overshoot a price-channel boundary, as has already happened with wave E{-10}. It may overshoot even further before it is done.

As I wrote this morning — and it bears repeating — “The biggest question mark is where will the upward correction end. I’ve found that looking for endpoints is a dive into a pool of ambiguity.” What the economist Karl Marx said about capitalism applies doubly to the end game on a chart: “All that is solid melts into air…”

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures shot up from the 3830s to the 3870s in a single minute when the employment numbers were released an hour before the opening bell. It then immediately dropped back to the 3840s and 3850s.

What does it mean? The explosive rise in response to the jobs number is fairly meaningless. The retreat halted at the lower boundary of a price channel marking an upward correction that began on December 19, 2022, meaning that the correction is still underway. The correction is taking the form of a Horizontal Triangle and will be followed by an energetic downtrend.

What are the alternatives? The biggest question mark is where will the upward correction end. I’ve found that looking for endpoints is a dive into a pool of ambiguity.

Chart note. The boundaries of the Triangle are marked in the chart in red. Price movements on the chart are fractal in nature, meaning bigger wave contain smaller waves and are contained by still bigger waves, all following the same patterns. The relative level of each wave — its degree — is given in a subscript, within curly brackets. The smaller the number, the smaller the degree. We’re tracking fairly small waves at present, and so the subscripts are all negative. Degree 0 is a downtrend that began on January 4, 2022, a degree that the developer of Elliott wave analysis, R.N. Elliott, called an Intermediate Wave.

[S&P 500 E-mini futures at 3:30 p.m., 210-minute bars, with volume]

What does Elliott wave theory say? The waves important to the analysis, small to large.

  • Wave 4{-10} is the next to the last wave within the Triangle.
  • The Triangle is the form taken by wave 2[-9}, an upward correction that began on December 19, 2022.
  • Wave 2{-9} is part of a downtrend, wave 1{-8}, which is the first wave within a larger downtrend, wave 3{-7}, which began on December 13, 2022.
  • The wave encompassing all of that is wave 3{-6}, a downtrend that began on August 16, 2022.
  • Above that degree is a series of 1st waves of increasing size, from 1{-5} up to 1{-2}, all having begun on January 4, 2022.
  • They are subwaves of wave 4{-1}, the downward next-to-the-last wave within an expanding Diagonal Triangle, wave 5{0}, the intermediate wave referred to in the chart note. Wave 5{0} began on December 27, 2018.

Big picture:

  • Wave 4{-1} may well end near the lower price channel boundary of the Diagonal Triangle, wave 5{0}. That boundary presently is around 1850 and moving lower each day.
  • It will be followed by rising wave 5{-1}, which will return to the upper boundary, presently in the 5870s and rising further every day.
  • The parent wave 5{0} is the final wave of an uptrend that began in 2009, wave 5{+1}.
  • Wave 5{+1}, when complete, will also be the end of waves 5{+2} and 5{+3}.
  • Wave 5{+3} began in 1932 at the end of the 1929 market crash that kicked off the Great Depression. That massive 5th wave will be followed by an equally massive downward movement of generational proportions.

A grim picture. But it will take us quite a long time to get there to the next generational crash. And in the meantime, there is money to be made by trading the uptrends and correction within those larger movements.

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, January 6, 2023


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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