Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures whipsawed between the 4040s and the 4080s after the Federal Open Market Committee announced a 25-basis-point increase in the Fed Funds rate. Fed Chair Jerome Powell’s news conference began at a low of 4048.50, and as he spoke the price shot up to 4144.50, remaining near that high point as the closing bell approached.

In terms of Elliott wave analysis,

  • The price remains a bit less than 30 points below 4180, the starting point of the preceding wave, 1{-9}. Under the Elliott wave rules, the price cannot move above that level. If it does, it forces a major reanalysis.
  • The rise confirms this morning’s principal analysis: An upward correction that began on December 22, 2022, wave 2{-9}, is still underway. Under that analysis, the correction is nearing the end of its first internal segment, wave A{-10}.
  • The rise also leaves the two alternative analyses in place, but the January 26 high, 4109.25, has been replaced by today’s high, 4144.25 so far.

The alternatives now read:

  • Alternative #1: The first segment of the upward correction, wave A{-10}, ended at the February 1 high (whatever it turns out to be). The declining second segment, wave B{-10}, will follow.
  • Alternative #2: The third and final segment ended at the February 1 high, and with it the entire upward correction. A downtrend is now underway and will carry the price below 3785.50, the starting point of the correction, and most likely significantly below that level.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures see-sawed in the 4070s and 4080s in overnight trading, remaining above an important resistance level. Trading today will be event driven. The Federal Open Market Committee announces it’s interest rate decision at 2 p.m., and Federal Reserve Chair Jerome Powell takes questions from reporters at 2:30 p.m.

What does it mean? The resistance price is 4029.30, the 61.8% Fibonacci retracement level within the upward correction that began on December 22, 2022 and is continuing the end game of its first segment. When that segment is complete, after exceeding the correction high so far, 4109.25, attained on January 26, it will be followed by a declining second segment that will remain above the correction’s starting point, 3785.50. I expect the correction to have three segments altogether.

What are the alternatives? The same two that have been with us for awhile.

Alternative #1: The first segment of the upward correction ended at the January 26 high. The declining second segment is now underway.

Alternative #2: The third and final segment ended at the January 26 high, and with it the entire upward correction. A downtrend is now underway and will carry the price below 3785.50, the starting point of the correction, and most likely significantly below that level.

Chart notes. Under Elliott wave theory, the ups and downs we see on the chart are called waves, built from smaller waves and in turn serving as building blocks for larger waves, in a complex fractal pattern. Bigger or smaller, all waves produce the same patterns and follow the same rules.

A wave’s placement within the fractal pattern is called it’s degree. I show the degree as a subscript after each wave’s number (in trending waves) or letter (in corrective waves) designator, setting off the subscript with curly brackets. The smaller the subscript number, the lower the size of the wave within the fractal structure.

I’ve superimposed a retracement ladder on the chart, in red, showing the Fibonacci retracement points. With the price above the 61.8% Fibonacci retracement, that level becomes an import level of support. If the price stays above it, then that buttresses the principal analysis. If it falls below it and stays down, that lends credence to the alternative analyses.

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

What does Elliott wave theory say? Unchanged from yesterday, and I’ve copied the text of this section, unchanged.

These are the waves I’m tracking in my analyses.

Principal analysis: The upward correction is wave 2{-9} and is nearing the end of its first subwave, wave A{-10}. The Fibonacci ladder on the chart tracks the wave 2{-9}’s retracement of the downtrending wave that preceded it, wave 1{-9}.

Analysis #1: Wave A{-10}, the first subwave of wave 2{-9}, ended on January 26. The second subwave, wave B{-10}, is now underway.

Analysis #2: Wave 2{-9} and its third and final subwave, wave C{-10} ended on January 26. Wave 3{-9}, a downtrend, is now underway.

The three analyses are playing out within wave 1{-8}, a downtrending wave with wave 2{-7}. Both began on December 13, 2022, from 4110. Those two waves, in turn, are subwaves of a nested series of downtrending waves of increasing size, up to wave 4{-1}, the next-to-the-last subwave of an expanding Diagonal Triangle, wave 5{0}, which began on December 26, 2018.

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)
  • S&P 500 Futures and index:
  • 4{-1} Minor, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-2} Minute, 1/4/2022, 4808.25 (down)
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down)
  • 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, February 1, 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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