Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose back into the 4190s early in the session but then fell again, back into the 4130s. This morning’s analysis is unchanged: The middle segment of an upward correction that began on October 13, 2022 is still underway. In the terminology of Elliott wave analysis, wave C{-8} within wave 2{-7} continues. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined sharply, from the 4170s to the 4130s, as the employment situation report showed non-farm payrolls growing at nearly triple the expected rate. In overnight trading, the price remained below the February 2 high, 4208.50.

What does it mean? The final segment of an upward correction that began on October 13, 2022 continues and is nearing its end. That final segment internally is a middle part within the final segment, the 3rd of five directional movements, or waves.

When the middle wave within the final segment is complete, it will be followed by a declining wave, and then a rise to new highs.

When that final segment is complete, it will be the end of the upward correction, and will be followed by an energetic downtrend that will carry the price at least 700 points lower, and most likely much lower than that.

What are the alternatives? The middle part of that final segment may have ended at the February 2 high, and the 4th wave within that segment may be underway. It will be followed by a rising 5th segment that will complete the upward correction.

Chart notes. In developing Elliott wave analysis in the 1930s, “waves” is the term R.N. Elliott used to describe directional movements on the chart. The waves on a chart form a complex structure, with larger waves containing smaller waves and also being part of still larger waves, with all waves producing the same patterns and following the same rules. Nowadays we call that a fractal structure.

Today we still follow Elliott’s practice of numbering waves within trending waves and using letters for waves within corrective waves. Each wave has a place — a degree — within the fractal hierarchy. I use subscripts, within curly brackets, to show the degree. The smaller the number in the subscript, the smaller the degree.

On today’s chart below, the waves I’m tracking are relatively small, and the degrees are negative numbers.

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

What does Elliott wave theory say? Here’s where the S&P 500 futures stand in the fractal hierarchy.

Under both the principal and the alternative analyses:

  • The upward correction is rising wave 2{-7},
  • One degree lower, wave 2{-7} is in its final segment, declining wave C{-8}.

Under the principal analysis:

  • Wave C{-8}, in turn, is in its middle segment, rising wave C{-9}.

Under the alternative analysis:

  • Wave C{-9} ended on February 2 — yesterday — at 4208.50
  • Declining wave D{-9} — the 4th of five subwaves within wave C{-8} — is now underway.

Wave C{-9} is the third of five subwaves within wave C{-8}. When the 5th subwave is complete, it will also be the end of wave C{-8} and of the upward correction, wave 2{-7}.

Downtrending wave 3{-7} will follow and will carry the price below 3502, the starting point of wave 2{-7}. Third waves are almost always the longest and most energetic of the trending waves, and I expect wave 3{-7} to move significantly below 3502.

All of that is happening within wave 3{-6}, which began on August 16, 2022. Wave 3{-6} is one of a series of nested downtrending wave, moving up the fractal structure five degrees, to wave 4{-1}, which began on January 4, 2022 at 4808.25. Wave 4{-1} is the next-to-the-last wave within a large expanding Diagonal Triangle, wave 5{0}, that 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)
  • 2{-7} Minuscule, 10/13/2022, 3502 (up)

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 3, 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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