Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The price of the S&P 500 futures has fallen sharply during today’s session, from slightly below the 61.8% Fibonacci retracement level to slightly above the 38.2% Fib level. (See this morning’s discussion, below, for more on Fibonacci levels.)

The decline confirms this morning’s alternate analysis. The upward correction that began on December 19, 2022 from 3803.50 ended on January 17 at 4035.25 has ended. The subsequent decline is part of a downtrend that will carry the price significantly lower.

In Elliott wave terminology, the upward correction, wave 2{-9}, ended on Tuesday, and wave 3{-9} has begun. Third waves tend to be powerful. I anticipate that this wave will take a month and perhaps longer to work its way down. I have no target yet, but the price will move below 3803.50, the starting point of the preceding upward correction, and almost certainly well below that level.

I’ve updated the chart below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly overnight, with two rapid movements, each lasting a couple of minutes. The range was defined by the second movement movement about an hour before the opening bell. The price to the 4030s and then decline to the 4010s, all within two minutes. The first movement, during the Tokyo Stock Exchange session, ran from the 40-oughts up to the 4020s.

What does it mean? The prices remained below Tuesday’s high, 4035.25, leaving the analysis is unchanged from the day before, with two possibilities.

Either the the upward correction that began on December 19, 2022 is still underway…

What is the alternative?

… or the upward correction ended at Tuesday’s high and a downtrend began and is now in a low degree upward correction.

There’s little to distinguish between the two. The lower the price goes, the more likely it is that the alternative analysis matches the chart’s reality.

Chart notes. I’ve placed a Fibonacci retracement level on the chart — in red — to trade the upward correction’s movement in relation to the prior decline, which ran from December 13 to December 19 last year. On Tuesday the price came within a point of the 61.8% retracement level, often a major reversal point, and in fact did reverse, bringing the price down to present levels,

A note on the numbers and letters used to identify directional movements — “waves” in Elliott wave parlance, The subwaves within corrections are designated by letters, and within trending waves, by numbers. The waves on a chart form a fractal pattern. Larger waves contain smaller waves and are contained by even larger waves, and they all dance to the same tune, creating the same patterns and following the same rules. A wave’s relative place in the fractal hierarchy is called it’s “degree”. I designated the degree by a subscript after each wave’s number or letter, setting it with curly brackets. The smaller the subscript number, the lower the degree of the wave.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What does Elliott wave theory say? These are the waves of the principal analysis:

  • The upward correction is wave 2{-9}.
  • It is presently in its last subwave, E{-10}
  • Wave 2{-9} will go still higher, exceeding yesterday’s high, 4035.25.

The waves of the alternative analysis:

  • The upward correction, wave 2{-9}, ended at Tuesday’s peak, 4035.25.
  • A downtrend, wave 3{-9}, began at that point and is now underway and is in its first subwave, 1{-10}.
  • Wave 3{-9}, as a third wave, is likely to be the longest wave of the larger downtrend, wave 3{-7}, that began on December 13 and will carry the price siginificantly lower.

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 18, 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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