Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures shot up to 4073.75 after the Federal Open Market Committee raised the Federal Funds Rate by 0.25% to a range of 4.5% to 4.75%. It then fell sharply, reaching close to 4000 as the closing bell approached.

The high price broke a rule of Elliott wave analysis, discussed this morning (below) before the Fed announcement. Because of the magnitude of the rise, this morning’s analysis no longer matches the reality of the market — the map doesn’t match the territory — and I have performed a reanalysis.

The new analysis:

An upward correction that began on March 13 continues and is in its initial wave. The wave is a 2nd wave, and the rules of Elliott wave analysis set an upper limit on 2nd waves: They don’t move beyond the starting point of the preceding 1st wave. In this case, the 1st wave began from 4208.50, and that is the firm upper limit to the upward correction.

In Elliott wave terminology, the upward correction is wave 2{-8}, the second wave within wave 3{-7}, a downtrend that began on February 2. Wave 2{-8} is in its first internal wave, A{-9}, which in turn is in its final wave, E{-10}. The preceding 1st wave, which sets an upper limit on the correction, is wave 1{-8}, which began on February 2 from 4208.50.

I’ve retained the chart of the old analysis from this morning. Here is a chart of the revised analysis:

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

9:35 a.m. New York time

Outdated. The analysis below has been made obsolete by events. See this afternoon’s analysis, above.

What’s happening now? The S&P 500 E-mini futures rose to 4043.25 at the end of yesterday’s session and spent the night trading sideways slightly below that level.

What does it mean? Traders are fishing for a top with very little room on the upside to achieve one. Under a rule of Elliott wave analysis, the March 21 peak was 4.75 points below the upper limit of the upward correction that began on March 13.

The Federal Open Market Committee will release a statement at 2 this afternoon, announcing their decision on raising the Federal Funds Rate. Generally such announcements are met with several minutes of wild swings by the S&P 500 and its derivatives. If a swing moves beyond the upper limit and then declines the rest of the day and into tomorrow, how should the chart be interpreted?

The present upward correction is the 4th wave of a downtrend. Under the Elliott rules, a 4th wave can’t move into the territory of the preceding 1st wave. That 1st wave ended at 4043.25 on the futures, 3959.79 on the index. The price on the index has already exceeded that level. The futures price has not, so we’re already ensnared in a discrepancy.

Futures move in 25-cent increments, and the index moves in one-cent increments. So that difference means that the index could move above the level and the futures remain below, as long as the discrepancy was within 25 cents. Under those circumstances, it wouldn’t necessarily count as triggering the rule. But in this case, the index is 50 cents above the futures, so the rule really has been triggered.

Moreover, Elliott wave theory treats the markets as being a reflection of the public’s opinion and mood, as expressed by traders. Does a wild swing in response to a Fed announcement really represent the consensus opinion and mood of traders and the wider public? I’ve always figured that a good portion of those swings are driven by AI trading computers, along with day traders. Does the opinion and mood of a machine that mimics intelligence count in an analysis of the public’s opinion and mood?

Unanswerable questions. The markets of 2023 are far more complex than the markets analyzed by R.N. Elliott when he developed Elliott wave analysis. Given the pattern on the chart, a re-analysis won’t be a simple matter. Today, my plan is to ignore the rule, call the top if it happens, and deal with the rule and labelling problem today and possibly tonight.

What are the alternatives? The main alternative is a product of the game called “Find the Top”. Any higher high is potentially the top at this point, but we really won’t know for sure until the price has fallen far enough to the the top call a degree of credibility.

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.

[The former analysis: S&P 500 E-mini futures at 9:35 a.m., 40-minute bars, with volume]

What does Elliott wave theory say? Rising wave E{-16} continues. It is the final wave within the larger final wave, C{-15), of the upward correction, wave 4{-14}. It’s completion will bring wave 4{-14} to an end.

Here is a discussion of waves that are important to the 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}, which is in its final wave, 5{-12}..
  • 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}.
  • Within wave 5{-12}, downtrending wave 1{-13} is underway and internally is in wave 4{-14}, an upward correction.
  • Wave 4{-14} is in its final internal wave, C{-15}, which in turn is in its final subwave, E{-16}.
  • Under the rules of Elliott wave analysis, wave 4{-14} cannot exceed the end of the preceding 1st wave of the same degree, wave 1{-14}, which ended at 4048.
  • Wave 4{-14} will be followed by downtrending wave 5{-14}, which will complete its parent, wave 1{-13}
  • Wave 1{-13} and the start of an upward correction, wave 2{-13}.
  • 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.

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 22, 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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One thought on “Trader’s Notebook

  1. […] Wait a minute. Why are the chart’s wave numbers wildly different from yesterday morning? For those who didn’t see yesterday afternoon’s Trader’s Notebook, the price moved contrary to a rule of Elliott wave theory, and I reanalyzed the chart. The upward correction that began on March 13 is still there, but it is a larger degree compared to the former analysis. See the analysis and my reasoning here. […]


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