Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have risen back into the 3930s, above the upper boundary of the Horizontal Triangle that ended at yesterday’s high, 3973.25. The present decline and rise is consistent with the early stages of a downtrend, the scenario outlined in the principal analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell from yesterday’s high, returning to the 3890s and the upper boundary of the Horizontal Triangle that began on December 19, 2022. At the opening bell the price rose slight, reaching into the 3920s.

What does it mean? The decline strengthens the case that the January 9 high, 3973.25, marked the end of the Triangle and of the upward correction. Under this scenario, a powerful downtrend has begun.

What are the alternatives? It’s still possible that the price will reverse upward and the correction will continue. The price overshot the upper boundary of the Triangle — a not unusual occurrence –and the alternatives cover the possibility that the overshoot has not yet ended. These two alternative analyses have been part of the analytical picture since last week — January 5 — when the overshoot began.

  • The final segment within the upward correction may have completed only its 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 notes. I’ve labeled the chart to conform to the still tentative principal analysis — showing that the downtrend has begun. That in no way lessens the possibility that the upward correction has not yet ended.

The chart uses subscripts, in curly brackets, to denote the relative size of each wave (directional movement0 compared to others, a quality called a wave’s degree.

The Horizontal Triangle is marked 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? Under the principal analysis…

  • The upward correction, wave 2{-9}, ended on January 9. It took the form of a Horizontal Triangle, with five subwaves.
  • A downtrend, wave 3{-9}, has begun. Third waves tend to be the most powerful waves on the chart. They move fast and furious.

Under the alternative analyses…

  • Wave 2{-9} is still underway.
  • Internally, it is tracing out wave E{-10}, the final wave of the Horizontal Triangle, which overshot the Triangle’s upper boundary.

Looking at the chart more broadly…

  • This is all happening within wave 1{-8}, the first wave within a downtrend, wave 3{-7}, that began on December 13, 2022.
  • Its parent wave, downtrending wave 3{-6}, began on August 16, 2022, and is a subwave of wave 1{-5}, a larger downtrend that began on January 4, 2022.

Note that wave 1{-5} is only the first wave of a larger downtrend, wave 1{-4}, which also began on January 4 of last year. That first wave has lasted for a year, and there are four more subwaves to go, including an energetic third wave, suggesting that the decline that began a year ago won’t be ending anytime soon.

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 10, 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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