Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fall during the session, so far reaching into the 4080s, breaking past the 4098 low set on February 7. The decline past that level requires changes to this morning’s analyses, using Elliott wave analysis terminology.

Principal analysis:

  • Rising wave E{-10} has not yet begun.
  • Declining wave D{-10} is still underway.

Such an outcome was an alternative in my February 8 Trader’s Notebook.

Alternative analysis:

  • Today’s alternative, that wave 2{-7} ended on February 2, is still a potentially valid scenario.,

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight, reaching a high so far of 4170.25.

What does it mean? The upward correction that began on October 13, 2022 is on it’s final rise to completion. A move above the prior high within the correction, 4208.50, will confirm this principal analysis.

What is the alternative? The upward correction ended on February 2 at 4208.50. The present rise is a small correction within the early stages of a powerful downtrend that will carry the price below 3502, and most likely significantly below that level.

Chart note. Stock charts are complex, and Elliott wave analysis requires a complex notation to keep track of the directional movements, called “waves”. Every wave contains smaller waves within it, which contain still smaller waves. Every wave is in turn contained by larger waves, which are subwaves of still larger waves. That sort of arrangement is called a fractal structure.

To show where a wave fits in the fractal structure, it has a subscript, in curly brackets. The smaller the subscript number, lower the wave’s position within the fractal hierarchy.

Also, each wave has a number or letter showing where it fits in the pattern of which it is a part. The subwaves of trending waves are numbered, and of corrective waves, lettered.

[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 that are in play.

Under the principal analysis:

  • An upward correction, wave 2{-7}, is now underway.
  • Wave 2{-7} is in its last stages: Wave C{-8}, the last of three waves, and within it, waves C{-9}, also the last of three waves, and wave E{-10}, the last of five waves.
  • A wave positioned like wave E{-10} can be expected to exceed the precedng wave C{-10} peak, 4208.50 in this case. A move above that level confirms the analysis.
  • Once wave E{-10} is complete, it will also be the completion of the larger waves that encompass it: C{-9}, C{-8}, and the correction itself, 2{-7}.
  • After wave 2{-7} is complete, a powerful downtrend, wave 3{-7} will begin and will carry the price below the wave 2{-7} starting point, 3502, and typically, quite a bit lower.

Under the alternative analysis:

  • The upward correction, wave 2{-7}, ended on February 2 at 4208.50.
  • Downtrending wave 3{-7}, described above, is now underway.

Both analyses:

  • Encompassing all of this is wave 3{-6}, which began on August 16, 2022.
  • Wave 3{-6} is in turn encompassed by a series of larger waves, the smaller within the larger, stretching up five degrees to wave 4{-1}, which began on January 4, 2022.
  • 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 9, 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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