Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. During the session so far the S&P 500 futures have traded from the 3950s up to the 4010s. No change in this morning’s analysis. There’s an equal chance that either the upward correction, wave 2{-9], that began on December 19, 2022 is underway, or that the correction ended at the overnight high, 4019.75, and a downtrend, wave 3{-9}, has begun. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures whipsawed across 65 points after inflation figures for November were released before the opening bell. Beginning from 4008, the price jumped to 4019.75, fell within two minutes to 3954, and then rose over the next hour into the 4020s.

What does it mean? The 4019.75 high set a new peak for upward correction that began on December 19, 2022. And like any new peak of the last week, it could either be a stopping point as the correction continues to rise…

What are the alternatives? … or it could be the end of the upward correction, which subsequent movements below that level being the early phases of a downtrend that will carry the price significantly lower.

Chart note. Neither analysis, the principal nor the alternative, has an edge. Each has an equal likelihood of accurately mapping the terrain shown on the chart. I’ve chosen for the present to stick with the scenario that see the uptrend as still being underway.

In Elliott wave theory, directional movements on stock charts — called “waves” — form a fractal structure, with smaller waves forming the building blocks of larger waves, which in turn form the building blocks of still larger waves. And all of those waves, whatever their size, form the same patterns and follow the same rules.

On the chart, I label the subwaves of trending waves with numbers and of corrective waves with letters. Each label has a subscript, in curly brackets, showing where the wave fits in the fractal structure, its relationship to other waves on the chart. That relationship is called its “degree”. The present chart shows waves of fairly small degree, and so the subscripts are negative.

[S&P 500 E-mini futures at 3:30 p.m., 4-hour bars, with volume]

What does Elliott wave theory say? Under the principal analysis, these are the waves that I’m watching:

  • An upward correction, wave 2{-9}, has been underway since December 19, 2022.
  • The correction has taken the form of a Horizontal Triangle.
  • The Triangle is now in its fifth and final segment, wave E{-10}, which has shot above the upper boundary of the Triangle.
  • When complete, wave 2{-9} will be followed by a downtrend, wave 3{-9}.

Under the alternative analysis, the wave plays out this way:

  • A downtrend that began today is underway, It is wave 3{-9}.
  • Internally, wave 3{-9} is in its initial segment, wave 1{-9}.
  • That initial segment will be followed by an upward correction, wave 2{-9}

Both alternatives are structures within larger downtrends. From smaller to larger, they are:

  • Waves 1{-8} and 3{-8}, both of which began on December 1, 2022 from 4110.
  • Wave 3{-6}, which began on August 16, 2022 from 4327.50
  • And wave 1{-5}, which began on January 4, 2022, from 4808.25 — the starting point of a decline and I expect to last well into 2023 and perhaps longer.

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 12, 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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