Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures peaked in the first half hour of trading and then continued with a resumption of the decline that began on March 6, reaching a low so far of 3909.50. The price broke below the starting point of the preceding upward correction, 3947.50 on February 22, confirming that the downtrend began on March 6.

The downtrend that began on March 6 is wave 5{-12} and the upward correction that preceded it and ended on March 6 was wave 4{-12}.

Since the decline began, the price has has completed four waves and now is in the 5th and final wave of a downtrend within the larger downtrend.

In Elliott wave terms, downtrending wave 5{-12} has been underway since March 6. It is impossible in the early stages of wave to know with certainty what degree the subwaves are. My best guess is that the entire decline since March 6 has been wave 1{-13}, and the four completed waves within wave 1{-13} are one degree further down, waves 1{-14} through 4{-14}. Using this model, downtrending wave 5{-14} is now underway within wave 1{-13} within wave 5{-12} is now underway. But the degrees could change as the pattern develops.

As I noted this morning, wave 5{-12} will most likely move significantly below 3947.50.

I’ve updated the chart.

This morning’s alternative analysis is no longer valid. It raised the possibility that the upward correction, wave 4{-12}, is still underway and is forming a compound structure.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded in the 3980s and 3990s until the jobless claims report showed a greater than expected rise. The futures quickly rose above 4000, a small move but a contrast to the flatness the price overnight.

What does it mean? The analysis remains unchanged from yesterday. The downtrend that began on March 6 continues and is in his early stages. Typically, a wave in this position will move below the starting point of the preceding correction. In this case, the upward correction began on February 22 from 3947.50. The move could be a good distance below that level.

What are the alternatives? It’s possible that the upward correction that began on February 22 is still underway and is forming a compound structure, which will link two or three corrective patterns together. Under this scenario, the first corrective pattern ended on March 6, and the present decline will connect the completed first pattern with a future second corrective pattern.

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., 80-minute bars, with volume]

What does Elliott wave theory say? A discussion of the waves of interest using the wave numbers and degree subscripts.

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 final wave of three, wave C{-13}.
  • Wave C{-13} will have five waves internally, appears to have just completed wave C{-14} and may have completed wave D{-14} and to have launched its final wave, E{-14}, which will complete the parent wave, C{-13}.
  • 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:

  • Wave 4{-12}, an upward correction that began on February 22, is still underway and is forming a compound structure, linking two or three corrective patterns together..
  • A falling wave connecting the now complete first corrective pattern — waves A{-13}, B{-13} and C{-13} — with a future second corrective pattern is now underway and is designated wave X{-13}.

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
  • When wave 4{-1} is complete, wave 5{-1} will begin and will carry the wave above the January 4 high, 4808.25, and into the 6000s, where the present upper boundary of the triangle lies. The expanding part means that each day that upper boundary moves higher.

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 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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