Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell to 3974.25 in mid-session and then rose back into the 4020s. The low point was below yesterday’s session low, 3893.55, confirming that a small subwave, {5-12}, of the 3-week-old larger downtrend, wave 5{-7}, is still underway. When 5{-12} is complete, it will also be the completion of wave 3{-11}, a downtrend that began on February 16.

This are all small-degree movements whose value lies in their indicating when a larger upward correction might begin. Waves 1{-8} and 1{-9} have been downtrending since February 2, and their termination, when wave 5{-10} comes to an end, will be the start of an upward correction that could carry the price up into the high 4100s. Aside from that early warning function, the smaller degrees are just the daily dance of the market, full of sound and fury, signifying nothing.

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 4030.

What does it mean? The downtrend that began on February 2 continues and is in its initial decline, which, when complete, will be followed by an upward correction.

What are the alternatives? There are two, unchanged from yesterday:

Alternative #1: It remains possible that the present movement is a subwave of the upward correction that began on October 13, which, under this scenario, is still not complete. A reversal and rise above 4208.50 would confirm thiws analysis.

Alternative #2: Early in a directional movement, determining the place of a subwave in the fractal hierarchy of waves — smaller waves within larger waves that in turn are the subwaves of still larger waves — is at best an experienced guess, at worse a throw of the dice. All of the subwaves I’ve labeled on the chart cold be one or two degrees higher, or one degree lower. There’s no way to know for sure. This doesn’t effect the analysis; however, it can speed things up or slow them down.

Chart note. Also unchanged from yesterday.

The fractal nature of stock movements requires a complex labeling system. The chart mark-up, showing the Elliott wave analysis, works like this: Each wave has a designation — a number or letter — that shows its position within the larger structure that contains it. And each wave designation is followed by a subscript, in curly brackets, to indicate the wave’s place, its degree, within the complete fractal structure of the price movements. 

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

What does Elliott wave theory say?

Here are the waves that my analyses are based on.

Principal analysis:

  • The downward correction that began on February 2, wave 3{-7}, continues.
  • It is in the first of five subwaves, wave 1{-8}.
  • Within wave 1{-8}, wave 1{-9} is underway and is in the final subwave within a five-wave structure, downtrending wave 5{-10}.
  • Wave 5{-10}, in turn, is in its middle wave, 3{-11}, which is in its final wave, 5{-12}.
  • The nature of the low-degree rise that began on February 22 is uncertain. It is either a subwave of an ongoing downtrend, wave 5{-12}, or wave 5{-12} ended at the February 22 low, 3983.75, also ending the parent wave 3 {-11}. If wave 3{-11} has ended, then an upward correction, wave 4{-11}, is now underway.
  • When wave 5{-10} is complete, it will also mark the end of wave 1{-9} and the beginning of a low-degree upward correction, wave 2{-9}.
  • Wave 3{-7} is still taking its tentative first steps and will develop into a powerful downtrend that will carry the price below 3502, the starting point of the preceding upward correction, wave 2{-7}, and most likely significantly below that level.

Alternative analysis #1:

  • The upward correction that began on October 13, 2022, wave 2{-7}, is still underway.
  • It is in the third of three parts, upward wave C{-8}.
  • C{-8} in turn is in its third and final subwave, rising wave C{-9}.
  • Wave C{-9} has five subwaves and is in the fourth, declining wave D{-10}.
  • Wave D{10} will be followed by rising wave E{-10},
  • A wave in wave E{-10}’s position normally will exceed the endpoint of the prior upward wave, 4208.50, which is wave C{-10}. That peak was attained on February 2.
  • The end of the wave E{-10} will also be the end of waves C{-9}, C{-8} and of the upward correction, wave 2{-7}.
  • Wave 3{-7} will follow, a powerful downtrend that will carry the price below the starting point of the correction, 3502, and most likely significantly below that level.

Alternative analysis #2:

The degrees of the waves my analysis have a degree (no pun intended) of uncertainty. What I’ve labeled as wave 1{-8} could in fact be wave 1{-9}, with another wave 1{-8} inserted in between and pushing everything smaller down a degree. Or the wave 1{-9} on my chart could in fact be 1{-8}, raising everything up by a degee.

Confirmation signals.

The principal analysis will be confirmed if the present decline, wave 3{-7} and its subwaves move below 3502.

Alternative analysis #1 will be confirmed if the present decline, wave D{-10}, moves above 4208.50.

Situations such as those described in alternative analysis #2 are generally confirmed by a price movement that breaks the Elliott wave analysis rules somehow. Since the chart is always right, this means performing a new analysis that almost always results in changes in the degree of each wave.

Bigger structures:

  • This is all happening within wave 3{-6}, which began on August 16, 2022.
  • Wave 3{-6} is 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)
  • 3{-7} Minuscule, 2/2/2023, 4208.50 (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 23, 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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