Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to rise during the session, reaching above 4100. The 61.8% Fibonacci retracement level, mentioned in the Chart note below, is at 4029.30, so the price as moved a bit beyond, although such breakouts aren’t uncommon.

Nothing that has happened so far run against the principal analysis that has been with us for awhile: An upward correction, wave 2{-9}, is underway. The higher the price, the closer it comes to a level that would discredit that analysis and force a major re-analysis of the chart. Under the rules of Elliott wave analysis, a 2nd wave cannot move beyond the starting point of the 1st wave that preceded it. For wave 2{-9}, that sets an upper limit of 4180. If the price moves above that level, then the rise isn’t wave 2{-9} and something else is going on,

But, for now, 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 meandered sideways overnight, staying largely in the 4050s and 4060s.

What does it mean? The price remained below the high point of an upward correction that began on December 22, 2022 and is now in its final leg.

What are the alternatives? The indecisive trading has done nothing to give an edge to the principal analysis or one of the two alternatives, which are unchanged for a second day in a row.

Alternative #1: The first segment ended at the January 26 high.

Alternative #2: The third and final segment ended at the January 26 high, and with it the entire upward correction. 

Chart note. I’ve placed a Fibonacci ladder, in red, on the chart, showing the retracement levels that tend to be reversal points.The most reliable of these is the 61.8% retracement. The price has shot above that level twice, on January 23 and January 25, suggesting that the futures are approaching a reversal to the down side.

I’ve labeled the waves — directional movements — in my usual fashion: Subwaves of trending waves are labeled with numbers, and of corrective waves, with letters. The placement of a wave within the fractal hierarchy of the chart — its degree — is shown by a subscript, in curly brackets. The lower the subscript number, the smaller the degree.

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

What does Elliott wave theory say? These are the waves I’m tracking within the upward correction that began on December 22, 2022 — wave 2{-9}:

  • Principal analysis: Upward wave A{-10}, a subwave of 2{-9}, is still underway.
  • Alternative #1: Wave A{-10} ended yesterday and downward wave B{-10} is underway.
  • Alternative #2: Rising wave C{-10}, the final wave in the corrective pattern, ended yesterday, bringing wave 2{-9} to an end. Downtrending wave 3{-9} has begun and will carry the price below 3785.50 — the starting point of wave 2{-9} — and potentially much 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, 12/13/2022, 4110 (down)
  • 1{-8} Subminuscule, 12/13/2022, 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 27, 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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