Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reached a session high of of 3973.25, tested close to that level again 35 minutes later, and then fell back into the 3910s. Was this the top of the upward correction? No way to tell. What we can know is that the upward correction is near its end, having satisfied all of the requirements of the form it has taken. 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 after trading resumed Sunday evening, reaching into the 3940s at the opening bell.

What does it mean? A Horizontal Triangle — the last segment of an upward correction that began on December 19, 2022 — is in its final leg and has overshot its upper boundary. When that final leg is complete, an energetic downtrend will follow.

What are the alternatives? There are two.

  • Where will it end? At this point, any higher high within that final leg could mark the end of the Triangle. Trying to call the end point is the upward version of what traders have long called “bottom fishing”.
  • The final segment within the upward correction may have completed only it’s first internal segment 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 the final part of a Triangle to overshoot a price-channel boundary. It overshot further overnight and may overshoot even further before it is done.

Chart note. I’ve marked the Horizontal Triangle on the chart in red.

[S&P 500 E-mini futures at 3:30 p.m., 180-minute bars, with volume]

What does Elliott wave theory say? The accountant who developed Elliott wave theory in the 1930s, R.N. Elliott, labeled subwaves within trending waves using numbers and letters within corrective waves.

A key finding from his work is that stock price movements form a fractal structure — each wave containing subwaves and in turn being contained by larger waves. And all of those waves, in their complex beauty, produce the same patterns and follow the same rules.

I denote the place of a wave within the fractal hierarchy — what Elliott called its “degree” — by using a subscript, set off by curly brackets. The small the subscript number, the smaller the degree. The waves I’m tracking closely now are of a fairly low degree and so are negative numbers. Degree {0} is downtrend that began on January 4, 2022.

Here are the waves I’m keeping close watch on.

  • The upward correction that began on December 19 is wave 2{-9}.
  • The final leg of the Horizontal Triangle that is the form taken by wave 2{-9} is wave E{-10}.
  • When wave E{-10} is complete, wave 2{-9} will also be complete, and will be followed by wave 3{-9}, a downtrend that like all 3rd waves will have a great deal of power.
  • Wave 2{-9} is a subwave of wave 1{-8}, which in turn is the first subwave of wave 3{-7}, a downtrend that began December 13, 2022, from 4180.

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 9, 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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