Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures peaked at 4206.25 and index, at 4196.92. Both then fell, the futures into the 4180s and the index into the 4160s. The upward correction that began on October 13, 2022 continues and is in its 3rd leg, wave C{-7}.

I don’t yet have a clear count of the subwaves within wave C{-7}. What is clear is the length taken by the two preceding legs of the correction. Wave A{-7} took about two months to complete it’s run. Wave B{-7} took three months. And wave C{-7} has been in progress for a month and a half. So by that metric, wave C{-8} problem has more room to rise before reaching its end.

Bottom line: The revised analysis is far more friendly to the bull side than was the prior analysis. I’ll get into target-setting later in the week. And yet, despite the bullish look, the chart contains a warning: There’s no firm rule that requires a wave to be proportional to the waves that came before it within a pattern. They can end more quickly, or last longer.

I’ve updated the upper chart, which shows this morning’s revised analysis.

10:40 a.m. New York time

The Revised Analysis. Here is the revised analysis of the S&P 500 E-Mini futures. In order to describe it, I’ll need to use Elliott wave terminology extensively. For a rundown on how it works, see the “Reading the chart” section below.

The changes begin with the beginning of wave 3{-6}, a subwave of wave 1{-5}, which began on January 4, 2022 from 4808.25.

Under the new scenario: The S&P 500 has been in an upward correction since October 13, 2022 — wave 4{-6} — and is presently in the final subwave of that correction. Wave 5{-6} will follow and is likely to carry the price below 3502, the correction’s starting point, and perhaps significantly below that level. Fifth waves have variety. They can truncate and remain above the starting point of the preceding correction, or they can extend, adding subwaves that will carry the 5th wave a large distance across a large span of time.

The present upward correction had five subwaves within its first wave, A{-8}, and so is taking the form of a Zigzag. The second wave, B{-8}, ended on March 13 and wave C{-8}, the final wave, is in progress.

Here is a chart showing wave 3{-6} so far.

[Revised analysis: S&P 500 E-mini futures at 3:30 p.m., 8-hour bars, with volume]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose after trading resumed overnight, reaching a high so far of 4196 and then declining back into the 4180s. The S&P 500 index broke a rule of Elliott wave analysis by breaking above 4169.48 and the present analysis will be redone. That takes time, and for now, I’m retaining the futures analysis as it was before the breakout.

What does it mean? The rise brought the price to within 2.25 points of the start of the decline that began on April 18, a downtrend that preceded the present upward correction, which began on April 26. The S&P 500 index broke above its upper limit as the opening bell approached. I’ve marked the chart as though the present upward correction were still underway.

A break-out above that downtrend’s starting point, 4198.25 on the futures would go against a rule of Elliott wave analysis. The rule was broken just minutes ago on the index chart. The rule goes like this: The downtrend is a 1st wave, the present correction is a 2nd wave. No 2nd wave, under the rules, can break above the starting point of the starting point that came before it. If it does, then the analysis no longer matches the chart.

To pull the quote from the 20th century semanticist Alfred Korzybski that leads the “Learning and Other Resources” section of every Trader’s Notebook: “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” So it is with Elliott wave analysis and the stock market charts that are it’s bread and butter.

Naturally, since the E-mini futures are one of many derivatives of the S&P 500 index, nothing is that simple. See my discussion, below, titled “Breaking out is hard to do”.

What are the alternatives? It’s possible that the price will retreat on both the index and the futures, marking the end of the upward correction and the beginning of a 3rd-wave downtrend.

[Outdated by an analysis revisions: S&P 500 E-mini futures at 9:35 a.m., 25-minute bars, with volume]

Breaking out is hard to do. In theory, the S&P 500 index and its derivatives, such as the S&P 500 futures, all march to the beat of the same drummer: Different products, same analysis. In practice, there are differences.

The S&P 500 futures move in 25-cent increments. The S&P 500 index moves in 1-cent increments. So it’s quite possible for the futures to break out above a level while the index remains below.

Moreover, the futures trade 24-hours a day, from Sunday evening New York time to Friday evening at the market session close. The index is calculated only during the market sessions. So if the futures break out overnight and then retreat below the breakout level before the session begins, then the index shows no sign of a breakout.

So what’s an Elliott wave analyst to do? Decades ago, I posted the question to an analyst at the world’s leading Elliott wave analysis company, Elliott Wave International. He replied that the index and the futures should be treated separately. A breakout by the futures has no impact when analyzing the index, and vice versa.

Over the years, I’ve become increasingly wary of that answer. The futures are a way of trading the index. End of story. And if the futures don’t reflect the index and the index, the futures, then what’s the point?

So I’ve reached a place where I treat the index as being authoritative in confirming a breakout. If the futures break out and the index doesn’t, then I don’t treat the futures as having actually broken out until the index breaks out. If the index stays below the break-out point, then the futures breakout never occurred. If the index eventually moves above its own breakout point, then the futures breakout is confirmed, even if it has subsequently retreated below the break-out point.

And on the present charts, the index has broken out, today, before the opening bell. The futures have not. Since the index decides, I’ve marked the futures chart as though the upward correction was still underway.

As noted above, the futures breakout point is 4198.25. For the index, the corresponding breakout point is 4169.96, a level reached shortly after the opening bell today.

What does Elliott wave theory say? Here are the waves that underly the revised analysis.

Principal analysis:

  • An upward correction, wave 4{-6}, began on October 13, 2022 and underway.
  • Wave 4{-6} is in its final subwave wave, C{-7}, which began on March 13, 2023.
  • As a 4th wave, wave 4{-6} has no upper limits under Elliott wave theory.
  • Wave 4{-6} will be followed by downtrending wave 5{-6}, which, like all 5th waves, might match one of a number of different patterns, all based on the downtrend’s relation with the end of the preceding 3rd wave, at 3502.
  • Usually, a 5th wave will move past the preceding 3rd wave’s end point.
  • Some 5th waves are truncated, and on this chart that means wave 5{-6} would end before reaching 3502.
  • Some 5th waves are extended, that would mean wave 5{-6} would have nine waves internally rather than the usual five, and would cover a greater than expected distance over a greater than expected period of time.

Bigger structures:

  • This is all happening within downtrending wave 1{-5}, which began on January 4, 2022 from 4808.25.
  • Wave 1{-5} is a subwave of a nested series of larger subwaves, from wave 1{-4} to wave 1{-2}. which also began on January 4, 2022.
  • Wave 1{-2} is a subwave of wave 4{-1}, 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.25, and back to the upper boundary of the triangle, which gets higher continually and is in the 6140s.

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.

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)
  • 4{-6} Submicro, 10/13/2022, 3502 (up)
  • C{-7} Minuscule, 3/13/2023, 3830.25 (up)

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, May 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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at