Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session, reaching back into the 4010s but remaining below the yesterday’s high, 4021.50. This morning’s analysis remains unchanged. Either the upward correction that began on December 19, 2022 is still underway, or the correction ended at yesterday’s high and a downtrend has begun. In Elliott wave terminology, the choice is between the correction, wave 2{-9}, or the downtrend, wave 3{-9}. There’s ambiguity in the chart, as is often the case with tops. I consider the choices to have equal likelihoods of accurately reflecting the market. I’ve updated both charts.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell in overnight trading, reaching into the 3960s, approaching the low it reached overnight one day earlier during a large whipsaw after new inflation data was released. The high during that whipsaw remains the peak of an upward correction that began on December 19, 2022. The price returned to the 3970s as the opening bell sounded.

What does it mean? As has been the case for several days, each new high is potentially the end of the upward correction, but it’s not a certainty. For the chart, I’ve chosen labeling that shows the upward correction is still underway.

What are the alternatives? As the alternative, I’ve chosen a scenario that sees the January 12 high, 4021.50, as being the end point of the upward correction, and the subsequent decline as being the first stages of a downtrend that will carry the price below the correction’s starting point, 3803.50.

I consider the two possible outcomes to equally likely.

Chart notes.

The upper chart shows the S&P 500 futures price movement from Wednesday’s session to 45 minutes before the opening bell of today’s session. The whipsaw in the middle is when the new inflation data was released, and I’ve marked the moment of release with a vertical dotted line in red.

The lower chart runs from September 2022 to the present, showing the entirety of a larger upward correction from October to December, the first subwave of the downtrend that followed, and the upward correction, which is the second subwave of that larger downtrend.

In Elliott wave analysis, the subwaves of trending waves — directional movements — are numbered, and those of corrective waves are labeled with letters. The waves of various sizes form a fractal pattern, with each wave containing subwaves, which in turn contain still smaller subwaves, and each wave being contained by a series of waves of increasing size. I show each wave’s relative position in the fractal hierarchy — its degree — with a subscript in curly brackets. The larger the subscript number, the larger the wave’s degree.

[S&P 500 E-mini futures at 3 p.m., 5-minute bars, with volume]

[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,

  • An upward correction, wave 2{-9}, began on December 19, 2022 and has so far reached a peak of 4021.50. It is in its last stages. It will be followed by a downtrend, wave 3{-9}.

Under the alternative analysis,

  • A downtrend, wave 3{-9}, began on January 12 from 4021.50 and is in its early stages. It can be expected to move below 3803.50, the starting point of the preceding upward correction, wave 2{-9}, and perhaps significantly below that level.

Under either analysis.

  • The waves listed above are subwaves of wave 1{-8}, a downtrend that began on December 13, 2022 from 4180.
  • That starting point is also the beginning of a wave one degree higher, wave 3{-7}.
  • Wave 3{-7} is contained with a series of downward parent waves of increasing degree, from wave 3{-6}, which began on August 16, 2022 from 4327.50 up to wave 4{-1}, which began on January 4, 2022 from 4818.62. Wave 4{-1} on the S&P 500 futures is the starting point of the present bear market.
  • The entire collection of waves of various degrees is contained in wave 5{0}, an expanding Diagonal Triangle that began on December 26, 2018.
  • Wave 4{-1} is the next-to-the-last subwave of that Triangle. It will be followed by uptrending wave 5{-1}, which will carry the price above the January 4, 2022 peak of 4818.62, and perhaps quite a distance above that level.
  • The end of wave 5{-1} will also be the end of wave 5{0}, which in turn brings an end to a series of larger waves up to wave 5{+3}, the low point, in 1932, of the Crash of 1929, the market disaster that triggered the Great Depression, which had such a great impact on the lives of our parents (for Boomers), grandparents (for GenX) and great-grandparents (for Millennials).

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 13, 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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