Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures during the day edged slightly below the pre-session low, 3956, reaching a low so far of 3943. The present upward correction, wave 2{-7}, began at 3947.50 on February 22, and the session low fell below that mark.

This reversal puts the analysis in search of a low and reversal, a process called “bottom fishing” in trader jargon. It means that even though the analysis lines up perfectly for the present low to actually be the turning point, there’s always just slight of low left, enough to invalidate that earlier conclusion. I’ve changed the chart below to show the present low as being the end of the middle wave of the correction, wave B{-13}.

However, I find it important that I remember that there is possibly more bottom fishing ahead. I would expect the end of wave B{-13} to be much beyond the start of the wave 2{-7} correction.

With that one adjustment, this morning’s analysis stands unchanged.

9:55 a.m. New York time

RIVN earnings play exit. I’ve exited my short bear call verticval options spread on RIVN for 34.2% of maximum potential profit and have updated the trade analysis with full results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a low of 3956 after the closing bell on Tuesday, rose during the wee hours of the morning to 3991 and then fell back, reaching into the 3960s.

What does it mean? The downtrend that began on February 15, a smaller part of a nested series of larger corrections, is in an upward correction. That correction internally is in its final leg. When the upward correction is complete, it will be followed by a decline, the final portion of the downtrend.

The key question now is how far the upward correction can go. The correction is the 4th segment of the downtrend, and a rule of Elliott wave analysis says that if a 4th wave moves beyond the end of the preceding 1st wave, 4098.25 in this case, then it’s not really a 4th wave and the chart must be reanalyzed. That sets an upper limit on the rise on this principal analysis.

There’s no guarantee that the correction will go that high. A common stopping point is a Fibonacci retracement level. The first leg of the correction touched the 38.2% Fibonacci level. The next Fib level higher, a 61.8% retracement, or 4969.86, would be a likely end point, although it’s a tendency, not a rule.

What are the alternatives? It’s possible that a downtrending subwave of the February 2 decline, one that began on February 14, ended at the February 22 low. If that proves to be the case, then the upward correction will be larger than the principal analysis expects.

Reading the chart. Under the labeling system, each wave — a directional price movement — 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. The subscript is needed because in Elliott wave analysis, waves form a fractal structure, with smaller waves serving as the building blocks of larger waves, which in turn are building blocks of still larger waves.

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

What does Elliott wave theory say? These are the waves that are guiding my analysis.

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}.
  • Wave 3{-11}’s middle wave, wave 3{-12}, ended on February 22, and the next-to-the-last wave, an upward correction, wave 4{-12}, is now underway.
  • Internally, wave 4{-12} is in its last wave of three, C{-13}. Wave C{-13} may well end that the 61.7% Fibonacci retracement level, 4069.86. However, under the rules of Elliott wave analysis, it cannot move above the end of wave 1{-12}, 4098.25. If it does, it will force a reanalysis.
  • The end of wave C{-13} will be the end of the correction, wave 4{-12}, which will be followed by wave 5{-12}, which will mark the end of wave 3{-11}, a subwave of downtrending wave 5{-10}.
  • The end of wave 5{-12} will also be the end of wave 3{-11}, a subwave of downtrending wave 5{-10}.
  • 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:

The alternative makes these changes to the principal analysis.

  • The February 22 low is the end of wave 5{-12} and also the end of its parent wave, 3{-11}.
  • Wave 4{-11}, an upward correction, began on that date.

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, March 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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