Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reversed from the overnight low, 3925, and pushed higher, back into the 3980s. This means that the final segment of the upward correction that began on February 22 is now underway. Maybe. Traders have spent the last few days bottom fishing, but honestly, who really knows whether this is in fact the end of the declining middle segment and the rise of the final segment.

In Elliott wave terminology, the final segment, wave C{-13} is now underway. It is a subwave of wave 4{-12}, an upward correction within downtrending wave 3{-11}, which began on February 16.

I’ve updated the chart, changing the wave labels to show that wave C{-13} is in progress.

How how high can it go? The correction is a 4th wave, and a rule of Elliott wave analysis says that if a 4th wave moves beyond the end of the preceding 1st wave, at 4098.25 in this case, then it’s not really a 4th wave and the chart must be reanalyzed.

And conversely, if the price reverses and moves even lower than last night’s low, I’ll consider once again the alternative analysis, which sees the upward correction as having ended on February 27 and the downtrend having resumed.

9:55 a.m. New York time

DELL earnings play entry. I’ve opened a short bear call spread on DELL, using options that trade for the last time in 50 days, and have posted an analysis. of the trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined further overnight but then rose enough to take almost all of it back in a classic resistance battle between bear and bull sentiments.

What does it mean? Elliott wave analysis suggests that bulls will win, although the result won’t be a true uptrend but rather will be the final leg of an upward correction that began on October 13, 2022. When the correction is complete, a true downtrend of significant size will begin.

What are the alternatives? Unchanged from the last few days. 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. I think this scenario is less likely because the scale of its internal waves is small compared to the size of the parent wave. There’s a lack of proportion, which often means that there’s a more accurate analysis to be found.

Reading the chart. Elliott wave analysis views the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. My labeling system assigns numbers to the subwaves of trending waves, and letters to the subwaves of corrections. Each number or letter is followed by a subscript, in curly brackets, showing the waves position within the complex structure, called its “degree” in Elliott wave parlance. The smaller the number, the lower the degree. On this chart we’re dealing with relatively small waves, so the degree numbers are negative.

[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, unchanged from yesterday.

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 middle wave of three, B{-13}, which is at or near its end. It will be followed by rising 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 2, 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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